Employer’s Obligations for the Form W-4 and DE 4
Each employee must complete a Form W-4 for federal and California withholding. Employers withhold taxes based on what the employee reports on the Form W-4. If the employee wants to claim a different marital status and/or different number of allowances for California Personal Income Tax (PIT) withholding, the employee must also complete a DE 4. Employers retain the Form W-4 and/or DE 4 for payroll records. If you question the Form W-4 or DE 4 because it meets any of the following conditions, then you must submit a copy of this form to Franchise Tax Board (FTB) by fax at (916) 843-1094 or mail to the address shown below. Please retain the original form in the employee’s payroll records.
• The employee claims more than 10 withholdings.
• The employee claims exemption from State or federal income tax withholding and the employee’s usual weekly wages will exceed $200.
• The employee makes major changes to Form W-4 or DE 4, such as crossing out words or writing more than is asked.
• The employee admits that Form W-4 or DE 4 is false.
Continue to treat the Form W-4 and/or DE 4 as valid until notified in writing by FTB of the proper marital status and number of allowances to use for California withholding purposes for the employee.
If an employee disagrees with an FTB determination as it applies to California withholding, the employee may request a review of the determination by writing to:
The burden of proof rests with the employee to show that the determination is incorrect for California withholding purposes. Continue to withhold California PIT based on the FTB determination until notified in writing by FTB of any changes. In the event FTB finds no reasonable basis for the number of withholding allowances claimed on the DE 4, the employee may be subject to a $500 penalty.
HOW TO DETERMINE PIT WITHHOLDING AMOUNTS
Refer to page 36 for the 2008 California Personal Income Tax (PIT) withholding schedules and information on how to calculate withholdings.
What if Your Employee Wants Additional PIT Withholding?
In addition to the tax required to be withheld from salaries and wages, you may, upon written request from the employee, agree to withhold an additional amount from the employee’s wages. This agreement will be effective for the periods you and the employee mutually agree upon or until written termination of the agreement.
If employees rely on the Form W-4 instructions when calculating California withholding allowances, their California PIT could be significantly underwithheld. This is particularly true if the household income is derived from more than one source. If an employee wants more California PIT withheld than the schedules and the alternate methods allow, the employee should either request additional withholding or, if married, indicate “single” on the DE 4. For more information, refer to the DE 4 form and instructions. An online DE 4 calculator is available at www.taxes.ca.gov/de4.xls (requires Microsoft Excel).
HOW TO WITHHOLD PIT ON SUPPLEMENTAL WAGES
Supplemental wages include, but are not limited to, bonuses, overtime pay, sales awards, commissions, stock options, and vacation pay. Under certain circumstances, bonuses and stock options are taxed at a different flat rate than other types of supplemental wages (see “Supplemental Wages” below). This only applies to stock options that are considered wages subject to PIT withholding.
If the supplemental wage is given to the employee at the same time as the employee's regular wages are paid, you are required to treat the sum of the payments as regular wages and withhold PIT based on the regular payroll period using the PIT withholding schedules.
If the supplemental wage is not given to the employee at the same time as the employee's regular wages are paid, you may use either of the following two options:
1. Compute the amount of PIT to withhold from the supplemental wage based on the combined regular wages and the supplemental wage. Compute the PIT withholding on the total of the supplemental wage and the current or most recent regular (gross) wage payment using the PIT withholding schedules. From that amount, subtract the PIT you withheld from the regular wages. The difference is the PIT amount you should withhold from the supplemental wages.
or
2. Withhold the percentage noted below on the following types of supplemental wages without allowing for any withholding allowances claimed by the employee: 
To find out if stock options are wages subject to PIT withholding, obtain the Information Sheet: Stock Options (DE 231SK) by accessing EDD's Web site at www.edd.ca.gov/taxrep/de231sk.pdf, or by calling our automated Fax on Demand system at (877) 547-4503, or calling the Taxpayer Assistance Center at (888) 745-3886.
QUARTERLY ESTIMATED PAYMENTS
Wages are subject to mandatory California PIT withholding at the time they are paid to the employee. Quarterly estimates paid directly to Franchise Tax Board (FTB) are intended to satisfy taxes on income that is not subject to withholding. Quarterly estimates paid by an employee directly to FTB in lieu of proper withholdings from wages may result in an assessment to the employer. If you have questions regarding quarterly estimated payments, contact FTB at (800) 852-5711.
WAGES PAID TO CALIFORNIA RESIDENTS
WAGES PAID TO NONRESIDENTS OF CALIFORNIA
PIT Withholding on Payments to Nonresident Independent Contractors
Please see Franchise Tax Board (FTB) Publication 1023 for guidance regarding PIT withholding on payments to nonresident independent contractors for services performed in California. Publication 1023 can be obtained by calling FTB at (800) 852-5711 or by accessing their Web site at www.ftb.ca.gov/forms/misc/1023.pdf.
ADDITIONAL INFORMATION
• EDD Web site (forms and publications) www.edd.ca.gov/taxrep/taxform.htm
• Fax on Demand (request Document No. 1001 for a catalog of all available documents) (877) 547-4503
• Information Sheets: Page 130
- DE 231D – Multistate Employment
- DE 231P – Withholding From Pensions, Annuities, and Certain Other Deferred Income
- DE 231PS – Personal Income Tax Withholding - Supplemental Wage Payments, Moving Expense
Reimbursement - WARN Act Payments
- DE 231R – Third-Party Sick Pay
• Types of Employment (table) Page 16
• Types of Payments (table) Page 26