How to calculate unemployment tax in California EDD - what employers and claimants need to know

This is incredibly helpful, thank you. So just to confirm - as a new employer in California my starting UI rate is 3.4% on the first $7,000 of wages per employee? So for two employees that's $7,000 x 2 x 3.4% = $476 per year to California EDD for UI alone?

That math is exactly right for the UI portion. Don't forget to add ETT at 0.1% on top, so another $14 total for two employees. And then FUTA separately at the federal level. Your California EDD e-Services for Business account will show your current rates and what's been reported.

wait is the $7000 wage base per calendar year or per quarter?? My accountant told me something different

It's per calendar year per employee. So once you've paid wages of $7,000 to a single employee in that tax year, you stop calculating UI and ETT on that employee's wages for the rest of the year. Quarters are just how you report and remit the payments to California EDD.

So if these two employees I just laid off collect unemployment benefits, my rate could go up next year? How significant is the increase usually?

It depends on your total payroll vs how much they collect. The formula is complicated but generally speaking for a small employer, one significant claim can bump you up a rate category or two. California EDD has a benefit charges statement they send out showing exactly what was charged to your account.

yep happened to me went from 2.1% to 4.8% after one employee collected for like 6 months it was brutal

Wow that's a big jump. Is there anything I can do to prevent it or appeal it?

Oh interesting, I didn't know there was a way to actually get through to someone. I've tried the California EDD employer line twice and gave up after being on hold forever.

I've heard of Claimyr but thought it was only for people claiming benefits not employers. Good to know it works for the employer side too

Yeah I was surprised it worked for employer account questions. The California EDD employer services line is just as hard to reach as the claimant line honestly. Having someone else manage the hold queue while I went about my day was a lifesaver.

does it actually work or is it one of those things that sounds too good lol

Right yes my payroll software handles the SDI withholding but I wasn't sure if I as the employer also had a matching contribution for that specifically

nope SDI is employee-side only. UI and ETT are employer-side only. thats the split in california

Correct. Though worth noting that SDI also funds Paid Family Leave (PFL) in California which employees access separately from unemployment. Different program entirely but funded through the same SDI withholding.

You'll receive a 1099-G form from California EDD showing your total benefit payments for the year. Federal taxes: yes, unemployment benefits are fully taxable as ordinary income at the federal level. California state taxes: California actually exempts unemployment benefits from state income tax - so you only owe federal, not state, on your UI benefits. You can request voluntary withholding of 10% for federal taxes when you set up or update your claim, which many people do to avoid a surprise tax bill.

Oh wait California doesn't tax unemployment benefits? I had no idea. I've been worried about owing state taxes too. That's actually a relief.

Same I didn't know this!! I've been setting aside money thinking I'd owe California too. Good to know

Yep California is one of the more claimant-friendly states on this. No state income tax on unemployment benefits. Just make sure you handle the federal piece - the 10% voluntary withholding option is on your UI Online account settings.

Sure! FUTA = Federal Unemployment Tax Act = the tax you pay to the federal government. It goes into a federal fund that can help states when their own UI funds run low. Rate is 6% but you get a big credit (5.4%) for paying your state taxes on time, so most employers effectively pay just 0.6% to the feds. You file and pay FUTA on IRS Form 940. SUTA = State Unemployment Tax Act = same concept but at the state level. In California it's called SUI (State Unemployment Insurance). This is what you pay to California EDD. It funds the actual benefits your laid-off California employees collect. You report this on the DE 9 form and pay through California EDD's e-Services for Business portal. Both are calculated on the first $7,000 of each employee's wages per year (for FUTA and California SUI specifically - other states have different wage bases).

oh my god why has no one explained it that simply before. thank you. so they're basically the same concept just federal vs state

Exactly! Both exist to fund unemployment benefits - federal as a backstop, state as the primary system. As a California employer you're paying into both but the state one is by far the bigger amount and more variable based on your experience rating.

Wait voluntary contributions to improve my reserve account? I've literally never heard of this. Is this something most small employers don't know about?

It's definitely underutilized. You'd want to run the math carefully - California EDD's employer guide walks through the calculation, or you can call their employer account line (with patience or a tool like Claimyr to get through) and ask them to calculate whether a voluntary contribution would lower your annual rate enough to pay off. It has to be done before July 31 to count for the next year's rate.

This is genuinely one of the most useful things I've learned in this entire thread. I had no idea voluntary contributions were even a thing.

i wish i had known this years ago could have saved thousands

Totally separate calculation. Your weekly benefit amount (WBA) as a claimant is based on your own wages during the base period - roughly the first four of the last five completed calendar quarters before you filed. California EDD takes your highest earning quarter in that period and divides by 26 to get your WBA. The max WBA in California is adjusted periodically. The employer tax side funds the system overall but your individual benefit amount is purely determined by your own prior wages, not your employer's tax rate or anything like that.

Oh interesting so my benefit check has nothing to do with how much my old employer paid in UI taxes. It's just based on what I earned.

Correct. Even if your employer somehow paid zero in UI taxes (which would get them in trouble), you'd still be entitled to your calculated benefit amount if you meet the eligibility requirements. The two systems run in parallel.

Good point - I am technically an employer with employees so I do pay in. But I've had friends who freelance ask me if they can get unemployment and it never applies to them in the regular UI system.

Exactly. The self-employed have limited options through California EDD. SDI elective coverage is the main one. No UI equivalent for self-employed unfortunately.

this confused me so much when i first started freelancing i thought i was paying into unemployment for myself somehow lol nope

No, your former employer cannot affect your tax situation once you're approved and collecting. The only thing an employer can do is contest your initial eligibility (for example if they claim you were fired for cause rather than laid off). But they cannot change your 1099-G or affect your tax obligations once benefits are approved and paid. Your tax situation is between you and the IRS/FTB - your employer isn't part of that equation on the claimant side.

Okay that's a relief. I was worried because I know my old employer wasn't happy about the claim. They can contest it but they already lost that - I was approved.

Also how do I access my 1099-G from California EDD when tax season comes? Do they mail it or do I have to log in to get it?

California EDD mails 1099-G forms by late January. You can also access it digitally through your UI Online account under 'Tax Documents' or something similar. If you had them issue payments to a debit card, the mailing address needs to be current. Log into myEDD and verify your address to be safe.

Yeah I finally got through to someone yesterday using this and got my reserve account balance confirmed and learned I'm not far from being able to make a voluntary contribution before the July cutoff. Really glad I didn't wait for my accountant to get back.

I've been skeptical of these phone services but tbh the California EDD employer line is basically impossible to get through on your own so at this point I'll try anything

The employer line really is terrible. I've called at 8am on the dot multiple times and still end up on hold for 90+ minutes. Anything that manages the queue for you is worth it when you have actual account questions.

Yes, SUI taxes (and FUTA) paid by the employer are generally deductible as ordinary business expenses. The state UI taxes you pay to California EDD would typically be deducted on your federal Schedule C or as a payroll tax expense on your business return. Same for FUTA paid to the IRS. Worth confirming with your accountant for your specific business structure but in general these are deductible payroll tax expenses.

oh good! I feel like my old accountant missed a lot of deductions. definitely bringing this up with the new one

Yes always deductible. Along with SDI amounts you withhold and remit - those are a business cost even though they come from employee wages, you're still handling the tax compliance side so the associated admin costs and the actual remittance are legitimate business expenses.

No effect on the employee whatsoever. An employer could be paying the maximum UI rate and a former employee would still collect exactly the same weekly benefit amount as they'd get from a low-rate employer. The rate is entirely about the employer's own reserve account history - it doesn't flow to the claimant's benefit calculation at all.

Okay perfect. I wanted to make sure my old employer being constantly behind on their taxes or whatever doesn't somehow come back to bite me while I'm collecting.

It doesn't. California EDD protects the claimant side from employer compliance issues. Your approved benefits are your approved benefits regardless of what's happening on your employer's account.

This is one thing California actually does pretty well - the claimant isn't penalized for employer tax failures. The employer faces penalties and interest but the employees can still collect what they're entitled to.

Actually a really important question. If you repaid benefits in the SAME tax year you received them, California EDD should issue a corrected 1099-G. If you repaid in a DIFFERENT year (like you received benefits in 2024 but are repaying in 2025), the tax treatment gets more complicated - generally you can take a deduction for the repayment in the year you repaid, but the original 1099-G for 2024 would still show the full amount. You'd want to document the repayment carefully for your tax records.

Oh this is actually super helpful. I received benefits in early 2024 and am repaying now in 2025. So my 2024 1099-G is what it is but I can potentially deduct the repayment on my 2025 return?

That's the general concept though exact treatment depends on the amount and whether it crosses certain thresholds. For larger overpayments there's actually a specific IRS provision (Section 1341) that can sometimes be more beneficial than a simple deduction. Definitely worth a conversation with a tax professional for this specific scenario.

I'm so glad someone asked this. I've been nervous about this exact situation.

You need to register as an employer with California EDD within 15 days of paying wages that exceed $100 in a calendar quarter. You register through the e-Services for Business portal on the California EDD website and get a California employer account number. Once registered you'll file DE 9 forms quarterly showing wages and calculating your UI and ETT contributions. If you also have employees subject to income tax withholding you'll file DE 9C (payroll tax deposit) returns. California EDD will mail you information about your assigned rate and your quarterly filing schedule after registration.

wait do i have to register before i hire anyone or only after i start paying them

You register after you've paid wages that trigger the requirement - so once you've paid any employee more than $100 in a quarter. You don't pre-register before having employees. But you do need to act within 15 days once you hit that threshold.

also dont forget you still need to set up federal too - separate registration with IRS for FUTA and getting your EIN if you dont have one. california edd registration and federal registration are totally separate

Glad it got resolved. The voluntary contribution strategy is a really underutilized tool for small California employers - good to have in your back pocket. Good luck with the business.

glad this worked out! and yes claimyr was a lifesaver when i had my rate dispute last year, getting a live person at california edd is basically impossible without some help

Great outcome. The California EDD employer side of things is genuinely complex and the official resources don't do a great job explaining the experience rating system in plain language. Happy this thread helped.

Perfect example of why actually talking to a California EDD rep makes such a difference on account-specific questions. Good luck this year!

These are generally called SUTA dumping services or unemployment cost management companies - they do legitimately exist and some businesses use them. They typically monitor your benefit charges, file timely appeals when former employees claim benefits under circumstances that might make them ineligible, and manage the administrative side of responding to California EDD claim notifications. For larger employers with significant turnover it can make sense. For a small employer with occasional layoffs it's probably more cost than it's worth.

Interesting. So they're basically making sure you fight claims where the employee might not be eligible? Like if someone quit vs was laid off?

Exactly. An employee who quit without good cause, was fired for misconduct, or left voluntarily generally shouldn't be eligible for UI benefits. These services make sure employers respond promptly to claim notifications and provide documentation in those cases. If you don't respond to California EDD's notification, the claim often gets approved by default even if it shouldn't be.

Okay this is another thing I had no idea about - that I need to respond to California EDD claim notifications at all. I thought it was automatic. So if I don't respond I might end up with benefit charges that increase my rate even for someone who quit voluntarily?

Yes exactly right. The 10% voluntary withholding option is just a flat rate - if your total income for the year puts you in a 22% or higher federal bracket, you'll owe the difference. The withholding is just to prevent a large one-time bill, not to necessarily cover everything. Worth running a quick tax estimate mid-year to see where you stand, especially if you were working at decent wages before the layoff.

Yeah I worked half the year at about $65k annualized pace so I probably need to be setting aside more than 10%. Thanks for the reality check.

Definitely. Many people in that situation should be setting aside more like 15-20% of their weekly benefit amount to cover federal taxes, depending on their other income and deductions. A quick check on the IRS withholding estimator tool can give you a better number for your specific situation.