Do business owners have to pay unemployment on themselves through California EDD?

Okay so if I understand correctly, my sole proprietor income was never subject to UI taxes but now that I'm an S-corp paying myself a salary, I need to be treating myself as an employee and withholding/paying all those payroll taxes including UI? That's a significant change I may have missed during the transition.

yes exactly, my CPA explained the same thing when i switched from LLC to S-corp. your officer wages become subject to all the usual employment taxes. make sure your accountant registers you properly with California EDD as an employer if you haven't already

Wait so there's an exception for majority owners? That changes things - I own 100% of my S-corp. Does that mean I might actually be exempt from UI requirements on my own wages?

The majority owner exception is real but it's complicated. In California, certain corporate officers can be excluded from UI coverage under specific conditions, but it's not automatic - you may need to file for an exclusion. This is exactly the kind of question you need to ask California EDD directly because getting it wrong in either direction costs you money.

100% owner exclusion definitely exists but california edd doesn't just automatically apply it. you have to actively request it i think. def call them to confirm

I've never heard of that service - does it actually work for employer account questions or is it mainly for claimants? I need to talk to the employer services side of California EDD not the claimant side.

Good question - I used it for employer-related stuff and it connected me to the right department. Just be clear about what you need when they ask and it routes accordingly.

sounds too good to be true tbh but I've been on hold with EDD for so long I'd try anything at this point lol

This is really helpful context. So it sounds like I definitely need to be registered as an employer regardless, and then separately figure out whether my own officer wages are excluded from UI. Is the employer registration done through e-Services for Business on the California EDD website?

Yes, e-Services for Business is the right portal - you'd register as an employer there. And you're right that it's a two-step thing: employer registration separate from the question of your own coverage status as an officer.

This whole thread is giving me anxiety because I have a single member LLC taxed as an S-corp and I have no idea if I set any of this up right when I started paying myself. Time to have a very uncomfortable conversation with my accountant...

Did you send that written inquiry through their website or through mail? And did they actually respond in a reasonable time?

sent it through the employer services contact form on the edd website. got a response in about 3 weeks which was honestly faster than i expected. they gave me a clear written determination which my accountant was happy to have on file

This breakdown is exactly what I needed. So I need to file Form DE 1 if I haven't already. I'm realizing my accountant handled the federal EIN setup but may have left the California EDD employer registration as something I was supposed to do separately. Going to check my records today.

Very common gap - federal and state employer registrations are completely separate processes. Federal EIN through IRS, California employer account through California EDD via e-Services for Business. A lot of business formation services handle one but not the other.

ohh this is why my payroll company kept asking me about my EDD employer account number separately from my federal stuff! I didn't understand why they needed different numbers. makes more sense now

California EDD has a voluntary disclosure process that's generally more favorable than being discovered through audit. Coming in proactively to register and report back wages typically results in reduced or waived penalties even if you owe back UI contributions. The interest on back contributions is harder to waive but penalties for good-faith non-compliance are often negotiable. Much better than being assessed after an audit.

Oh that's actually reassuring. I was worried that self-reporting would just mean paying everything plus penalties but if the penalty portion can be reduced that changes the calculus significantly.

Yes the voluntary approach is always better. California EDD is more cooperative with businesses trying to get right than with those they catch out of compliance. Document everything and be upfront about when you started paying wages.

Great question and the answer is nuanced. If a corporate officer has been paying into UI and then the corporation ceases operation or reduces their wages/hours, they CAN potentially file a UI claim like any other employee-claimant. However California EDD scrutinizes these claims heavily because there are control/ownership issues - the idea that you voluntarily shut down your own business vs. being truly 'unemployed' through no fault of your own. It happens but it requires careful documentation that the business genuinely failed rather than you choosing to stop working.

Huh that's actually really interesting. So theoretically an S-corp owner who properly paid into UI and then had to close their business because of economic conditions could file a claim, just with more scrutiny. That makes the UI contributions feel more valuable to know about.

This is something I hadn't even considered - that paying UI on myself could actually provide a safety net if things went badly. Now I'm even more motivated to get this sorted out properly.

That's actually why I mentioned Claimyr earlier in the thread - it's not just for claimants, it helped me get through for employer account questions too. claimyr.com - the video demo at https://youtu.be/JmuwXR7HA10 explains how the callback system works. Anything that saves 90 minutes of hold time is worth trying.

Yeah I saw that mentioned above. I'll check out that demo video. At this point spending another 90 min on hold while trying to run my business just isn't realistic so I need a different approach.

the employer services hold times are brutal. i've had better luck calling right at 8am when they open but even then it's like 45 minutes usually

Good distinction. Having employees means you're already registered as an employer which is correct. For your W2 employees the UI, ETT, and SDI withholding/reporting requirements apply normally. As general partners your DRAWS are not subject to UI contributions and you cannot collect UI based on those draws. Your employer registration covers you for your employees - you don't need to add yourselves as employee-claimants. The situation changes if you actually take W2 wages from the partnership rather than draws, which is unusual for general partnerships.

That's super clear, thank you. We take draws not wages so it sounds like we're in the correct situation already.

This is the kind of nuance my accountant completely glossed over. She focused on the federal reasonable compensation requirement but didn't walk me through the California EDD side at all. I feel like I need a California-specific payroll specialist not just a general CPA.

Yeah a lot of CPAs are stronger on the federal side. California payroll compliance is its own specialty. Some payroll service companies like Gusto or Rippling actually handle the California EDD registration and filings automatically which can remove the burden of keeping track of it yourself.

Same experience - my CPA set everything up for federal but told me to 'check with California EDD' for the state employer account. That vague instruction sat in my to-do list for way too long.

The theoretical consequence is California EDD can assess back UI contributions on any wages you paid yourself that should have been reported, plus interest (currently around 3.5% annually), plus penalties of up to 25% of unpaid contributions in some cases. As a practical matter, California EDD tends to discover this through cross-referencing with EDD tax records, IRS reporting, or during business license renewals. Audit risk is real but varies. The penalty piece is the part most worth avoiding by coming into compliance proactively.

25% penalty on top of what you owe is pretty brutal. definitely motivates getting this sorted out sooner rather than hoping you fly under the radar

I had no idea about voluntary SDI election for business owners. Is that expensive? And does it actually provide meaningful coverage compared to just getting a private disability insurance policy?

The cost varies based on your wage level and the current SDI withholding rate. It's usually competitive with private disability coverage and has the advantage of integrating with California EDD's existing system. Worth comparing with a private policy but many business owners find the elective coverage worthwhile, especially for the PFML (paid family and medical leave) component.

This is a great point - the Paid Family Leave component of SDI is something a lot of business owners miss out on by not electing coverage. If you have kids or aging parents, PFML is a real benefit worth paying into.

The sole proprietor didn't owe UI contributions on owner income (as established earlier in this thread) so there wouldn't be back taxes from that period for UI purposes. The new S-corp entity is a completely separate legal entity and gets its own California EDD employer account number. The conversion doesn't carry forward liabilities that didn't exist. Where it gets complicated is if OP had W2 employees during the sole prop period and wasn't reporting properly - that WOULD carry forward as a liability of the sole proprietor.

ah ok so a clean slate in terms of UI because the sole prop income was never subject to it anyway. that makes sense.

Log into e-Services for Business on the California EDD website. If your payroll company registered you, you should either have your own login or they should be able to provide your California Employer Account Number. The account number format is 000-XXXX-X. You can also check your California payroll tax filings (DE 9 and DE 9C forms) - if those have been filed, you're registered. If you can't find any of this, call your payroll company first before assuming the worst.

Found it! My payroll company did set it up - I have an account number and can see quarterly DE 9 filings in e-Services. Major relief. Though now I need to check whether I elected the officer exclusion or not because I don't think I ever made that choice explicitly.

Glad you found yours - I'm about to do the same check on my end right now. This whole thread has been a useful wake-up call.

Okay this is third-person validation - I'm definitely going to try this. My employer account question has been sitting unanswered for weeks because I can't get through.

Third person to vouch for it in one thread is enough for me. Adding it to my toolkit for California EDD stuff.

This summary is perfect, thank you. I've got my homework laid out clearly. Going to check e-Services today, then call California EDD using the Claimyr method if I can't get through normally, and schedule time with a California payroll specialist this week. Really appreciate everyone's input on this.

Saving this whole thread. This exact situation applies to several small business owners I know who are all probably handling this wrong.

great thread. this should be stickied somewhere lol. every new business owner converting to S-corp in california needs to read this before their first payroll run