Withholding Tax on Wages in California

In Division 6, Chapter 2, of the California Unemployment Insurance Code, it deals with the withholding and payment of taxes on wages. Section 13020 provides that every employer who pays wages to a resident employee for services performed either within or without this state, or to a nonresident employee for services performed in this state, is required to deduct and withhold from those wages, except as specified, for each payroll period, a tax computed in that manner as to produce, so far as practicable, a sum which is substantially equivalent to the amount of tax reasonably estimated to be due.

The method of determining the amount to be withheld is prescribed by the Franchise Tax Board. Withholding is not required by this section with respect to wages, salaries, fees, or other compensation paid by a corporation for services performed in California for that corporation to a nonresident corporate director for director services, including attendance at a board of directors’ meeting.

Section 13021 requires every employer who has to withhold any tax to file a withholding report each calendar quarter, a quarterly return, and a report of wages in a form prescribed by the department, and pay over the taxes so required to be withheld. The report of wages is required to include individual amounts required to be withheld. The employer must file a withholding report, a quarterly return, and a report of wages, and remit the total amount of income taxes withheld during the calendar quarter on or before the last day of the month following the close of the calendar quarter.

In addition, an employer as specified may elect to make withholding payment by electronic funds transfer under specified conditions. The form used is that created by department. In addition to the three required filings, each employer must file with the director an annual reconciliation showing the amount required to be withheld, as well as and any other information the director prescribes.

Section 13021.5 defines the following terms: “electronic funds transfer,” “automated clearinghouse,” “automated clearinghouse debit,” “Fedwire,” “business day.” “settlement date,” and “cumulative average payment.” Section 13022 provides that the wages may, at the election of the employer, be computed to the nearest dollar.

Section 13023 states that the department may, by regulation, permit employers to estimate the wages which will be paid to any employee in any quarter of the calendar year, to determine the amount to be deducted and withheld upon each payment of wages to the employee during the quarter as if the appropriate average of the wages so estimated constituted the actual wages paid, and to deduct and withhold upon any payment of wages to the employee.

Section 13024 provides that the department may provide by authorized regulation, under the conditions and to the extent as it deems proper, for withholding in addition to that otherwise required in cases in which the employer and employee agree to additional withholding.

Section 13025 states that, in the case of remuneration paid in any medium other than cash for services performed by an individual as a retail salesperson for a person where the service performed by the individual for that person is ordinarily performed for remuneration solely by way of cash commission, then an employer cannot be required to deduct or withhold any tax under this division with respect to the remuneration, if the employer files with the department information with respect to the remuneration as the department may prescribe by regulation.

Section 13026 specifies that an employer is not required to deduct and withhold any tax under this division upon a payment of wages (except wages exempt from federal income tax but not exempt under this division) to an employee if there is in effect with respect to the payment a withholding exemption certificate.

Section 13027 states that, in the case of tips which constitute wages, withholding generally applies only to tips that are included in a written statement furnished to the employer and only to the extent that the tax can be deducted and withheld by the employer. An employer who is furnished by an employee a written statement of tips (received in a calendar month) may deduct and withhold the tax with respect to those tips from any wages of the employee under his or her control.

Section 13028 provides that, regarding pensions, annuities, and other deferred income, these are deemed to be wages and are subject to withholding under this section of law. Amounts withheld are treated as if the amounts are withheld by an employer for a payroll period and only amounts withheld are reported to the department. If an individual makes an election not to have tax withheld, that election applies to withholding under this division, unless the individual elects, with the consent of the payer, to have those payments subject to withholding.

Section 13028.1 provides that, if the director determines that nonpayment of tax by a nonresident under the income tax laws of this state may occur, the director is required to notify the payer of payments that withholding must be made from those payments. Upon notice from the director, the payer must withhold from those payments.

Section 13028.5 provides that any supplemental unemployment compensation benefit paid to an individual is to be treated as if it were a payment of wages by an employer to an employee for a payroll period. The term “supplemental unemployment compensation benefits” is defined.

Section 13028.6 specifies that any payment to an individual of sick pay which does not constitute wages, if at the time the payment is made a request that such sick pay be subject to withholding under this division is in effect, is required to be treated as if it were a payment of wages by an employer to an employee for a payroll period. This section defines the term “sick pay,”

Section 13029 authorizes the department to adopt regulations to provide for withholding for employees whose employer provides remuneration that does not constitute wages, or for other types of payments where the department finds withholding would be appropriate.

Section 13030 specifies that, if wages are paid with respect to a period which is not a payroll period, the amount to be deducted and withheld is the amount applicable in the case of a miscellaneous payroll period containing a number of days equal to the number of days in the period with respect to which the wages are paid. There are additional rules when wages are paid without regard to any payroll period.

Section 13031 provides that, if the remuneration paid by an employer to an employee for services performed during one-half or more of any payroll period of not more than 31 consecutive days constitutes wages, all the remuneration paid by the employer to the employee for the period is deemed to be wages.