What an Employee Really Costs a California Employer in 2026: Every Payroll Tax, With a Worked Example

The figures are arithmetic from the rates below, not quotes from any agency; the rates and bases are quoted. Everything changes on January 1, and two of the inputs are set late in the year, so the “as of” dates matter.

The IRS publishes the rates in Publication 15, the Employer’s Tax Guide, in a new edition each year. For 2026, Social Security tax is 6.2 percent for the employer and 6.2 percent for the employee on wages up to $184,500; Medicare tax is 1.45 percent each, with no wage limit¹. The employee also owes an Additional Medicare Tax of 0.9 percent on wages over $200,000 in a year, withheld by the employer without an employer match².

Federal unemployment tax, FUTA, is paid “only from your own funds”; nothing is withheld from the employee for it². The rate is 6.0 percent on the first $7,000 paid to each employee in the calendar year, and most employers receive a credit of up to 5.4 percent for the state unemployment tax they pay, which leaves a net rate of 0.6 percent, or $42 per employee³.

Sources disagree The 5.4 percent credit is reduced in a state that has carried a federal unemployment loan for two years, and the reduction is set by the Department of Labor each November⁹. The IRS’s draft 2026 Schedule A for Form 940 says California was “subject to credit reduction as of January 1, 2026” and that the final list and rates will not be announced until November 2026¹⁰. For 2025, the Payroll Association reported the California reduction at 1.2 percent, citing the Department of Labor’s November 10, 2025 notice, which raises the net rate to 1.8 percent, or $126 per employee instead of $42¹¹. The 2026 figure is not known as of October 2026; the extra tax is paid with the 2026 Form 940 in early 2027. Plan on the higher figure and treat the lower one as the best case.

Federal deposits must be made by electronic funds transfer. A new employer with $50,000 or less of tax in the lookback period is a monthly depositor, due by the 15th of the following month; Form 941, the quarterly return, is due the last day of the month after each quarter¹. The deposit calendar is worked through on setting up payroll for a first employee.

The Employment Development Department (EDD) publishes the state rates on one page. Two are employer-paid:

Source: the EDD rates page for 2026⁴. For a new employer, UI and ETT together are 3.5 percent of the first $7,000, or $245 per employee per year. The 2025 SDI rate was 1.2 percent, so a pay stub from last year shows a different figure on that line¹².

A business becomes a California employer, and must register with the EDD within 15 days, once it pays more than $100 in wages in a calendar quarter¹³. Returns (the DE 9 and the DE 9C) are due every quarter, filed and paid electronically through e-Services for Business, even in a quarter with no wages¹⁴. The registration steps are on registering as an employer in California.

Assumptions: one full-time employee, 2,080 paid hours a year, no overtime, 2026 rates, a new California employer in its first year. Gross wages are $20 x 2,080 = $41,600. Each line is the rate above applied to its base.

Total cash payroll before insurance: $41,600 + $3,469.40 = $45,069.40, or $45,153.40 at the higher FUTA rate. At the 2026 state minimum wage of $16.90, the same arithmetic gives $35,152 in wages and $2,976.12 in employer taxes⁶. At a $60,000 salary, $4,877.00. The percentage falls as pay rises because three of the five taxes stop at $7,000.

Withheld from the employee’s pay, and so not an employer cost: Social Security $2,579.20, Medicare $603.20, SDI at 1.3 percent, $540.80⁴, and federal and California income tax, which depend on the employee’s Form W-4 and DE 4. What those lines look like on the stub is on how to read a pay stub.

Workers’ compensation. Any California business with one or more employees must carry a workers’ compensation policy, bought from a licensed insurer or the State Compensation Insurance Fund, before the first employee starts⁵¹⁵. The Division of Workers’ Compensation says the state does not regulate premium rates; the price depends on the employer’s industry classification, claims history (the experience modification), payroll and any group or dividend program, and the employer cannot charge employees any part of it⁵. Operating without coverage is a crime, with penalties the division’s FAQ says “can reach $100,000”⁵. The premium is the one line in this page’s table that only a quote can fill.

Paid sick leave. Every employee accrues at least 40 hours or five days a year, from the first day of work, usable after 90 days¹⁶. At $20 an hour, 40 hours is $800 of pay for time not worked, if all of it is used; it sits inside the 2,080 paid hours above rather than on top of them.

Payroll administration. The Small Business Administration’s own checklist puts “choose in-house or outside payroll administration” among the ten steps of setting up payroll¹⁷. Doing it yourself through the IRS and EDD portals costs nothing but time. The site earns a commission on some links to payroll and HR services, which does not affect what is described. As of October 2026 Gusto’s basic plan is $49 a month plus $6 per person, with a pay-as-you-go workers’ compensation add-on “starting at $14/mo”¹⁸; QuickBooks Payroll’s lowest bundle is listed at $44 a month plus $6.50 per employee¹⁹; Homebase’s payroll add-on is $49 a month plus $6 per employee paid, on top of a plan that starts free for one location²⁰. None of these files anything the EDD and the IRS do not let an employer file free through e-Services for Business and electronic deposit¹¹⁴; what they sell is the calculation and the calendar.

Health insurance is not required below 50 full-time-equivalent employees: the IRS says the employer shared responsibility provisions apply only to an “applicable large employer” that averaged at least 50 full-time employees in the prior year, and that “most employers fall below the ALE threshold”⁷. An employer with fewer than 25 full-time-equivalent employees and average wages under an inflation-adjusted cap that buys coverage through the SHOP Marketplace and pays at least half of employee-only premiums can claim a credit of up to 50 percent of its premium cost for two consecutive years, on Form 8941⁸. The cap is $62,000 for the 2023 tax year on the IRS page as of October 2026; the current figure is in the Form 8941 instructions for the year.

Retirement plans are a separate rule: California’s CalSavers program requires employers with at least one employee to register or offer a plan, and that is on CalSavers for a small employer.