What Are Wages?

WHAT ARE WAGES?

Wages are all compensation for an employee’s personal services, whether paid by check or cash, or the reasonable cash value of noncash payments such as meals and lodging. The method of payment, whether by private agreement, consent, or mandate, does not change the taxability of wages paid to employees. Payments are considered wages even if the employee is:  a casual worker; a day or contract laborer; part-time or temporary worker; or paid by the day, hour, or any other method or measurement. Supplemental payments, including bonuses, overtime pay, sales awards, commissions, and vacation pay are also considered wages.

 

 

SUBJECT WAGES

Generally, all wages are considered subject wages and are used to determine the amount of Unemployment Insurance (UI), State Disability Insurance (SDI) and Paid Family Leave (PFL) benefits a claimant should receive. Subject wages are the full amount of wages, regardless of the UI and SDI taxable wage limits. Refer to inside cover for UI/SDI taxable wage limits. Enter the Total Subject Wages in “Item G” for each employee on the Quarterly Wage and Withholding Report  (DE 6). Certain types of employment and payments are not considered subject (refer to the “Types of Employment” table on page 16 and “Types of Payments” table on page 26).

 

 

PERSONAL INCOME TAX (PIT) WAGES

Personal Income Tax (PIT) wages are cash and noncash payments subject to State income tax. Wages that must be reported on an individual’s California income tax return are PIT wages. Most payments for employees’ services are reportable as PIT wages. An employee’s calendar year total for PIT wages should agree with the amount reported on the employee’s federal Wage and Tax Statement (Form W-2) in Box 16 (State wages, tips, etc.). The PIT wages for each employee must be reported quarterly in “Item H” on the DE 6. For additional information, obtain the Information Sheet: Personal Income Tax Wages Reported on the Quarterly Wage and Withholding Report (DE 231PIT). To obtain the  DE 231PIT, access EDD’s Web site at www.edd.ca.gov/taxrep/de231pit.pdf, call our automated Fax on Demand system at (877) 547-4503, request Document No. 3303 (English), or Document No. 3305 (Spanish) or contact the Taxpayer Assistance Center at (888) 745-3886 .

 

NOTE:  Some wages excluded from PIT withholding are still considered PIT wages and must be reported to EDD (for example, wages paid to agricultural workers).

 

 

DIFFERENCE BETWEEN SUBJECT WAGES AND PIT WAGES

In most situations, when wages are subject to UI, ETT, SDI, and PIT withholding, subject wages and PIT wages are the same. Examples of when subject wages and PIT wages are different are:

 

• Employee salary reduction contributions to a qualified retirement or pension plan are included as subject wages, but are not reportable as PIT wages (refer to the “Retirement and Pension Plans” section of the “Types of Payments” table on page 26).  

• Under certain situations, wages paid to family employees (minor child under 18, registered domestic partner, spouse, and parent) may not be reported as subject wages but are reportable as PIT wages (refer to the “Family Employees” section of the “Types of Employment” table on page 16).

• Payments made to employees of churches are not reported as subject wages, but are reportable as PIT wages (refer to the “Nonprofit Organization Employees” section of the “Types of Employment” table on page 16).

 

 

EMPLOYERS SUBJECT TO CALIFORNIA PERSONAL INCOME TAX (PIT) ONLY

Employers, who are only required to withhold California PIT, but not the other payroll taxes, are still required to register with EDD using the Registration Form for Employers Depositing Only Personal Income Tax Withholding (DE 1P). The employer is liable for the required PIT, whether or not it is withheld. By law, the filing of federal Form 1099 (issued to the worker) with the Internal Revenue Service or Franchise Tax Board does not relieve the employer of liability.  

 

MEALS AND LODGING

Meals and lodging provided free of charge or at a reduced rate to an employee are wages. If your employees are covered under a contract of employment or union agreement, the taxable value of meals and lodging cannot be less than the estimated value stated in the contract or agreement.

 

If the cash value is not stated in an employment contract or union agreement, please refer to the table below for the value of the meals and/or lodging. To determine the value of lodging, multiply the amount you could rent the property for (ordinary rental value) by 66 2/3 percent (0.6667). Ordinary rental value may be calculated on a monthly or weekly basis as follows:

 

Value of Meals

Value of Lodging

Year

3 Meals per day

Breakfast

Lunch

Dinner

Meal Not Identified

Minimum Per Week

Maximum Per Month

2008

$ 9.60

$ 2.10

$ 2.90

$ 4.60

$ 3.35

$ 35.40

$ 1,092

2007

$ 9.30

$ 2.00

$ 2.80

$ 4.50

$ 3.20

$ 33.80

$ 1,041

2006

$ 9.15

$ 2.00

$ 2.80

$ 4.35

$ 3.20

$ 32.45

$ 1,000

2005

$ 9.00

$ 1.95

$ 2.75

$ 4.30

$ 3.10

$ 31.05

$ 957

 

 

For more information on meals and lodging access EDD’s Web site at www.edd.ca.gov/taxrep/taxrte9x.htm#meals or call the Taxpayer Assistance Center at (888) 745-3886. If outside U.S. or Canada, call (916) 464-3502.

 

 

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 available documents)            (877) 547-4503

• Who is an Employee                                                                                                                         Page     7

• Types of Employment (table)                                                                                                            Page   16

• Types of Payments (table)                                                                                                                Page   26

• Information Sheets:                                                                                                                           Page 130

  - DE 231A – Wages

  - DE 231PIT – Personal Income Tax Wages Reported on the Quarterly Wage and Withholding Report (DE 6)

  - DE 231W – Personal Income Tax Adjustment Process

 

WAGES SUBJECT TO PIT WITHHOLDING

With certain exceptions, compensation for services performed by an employee is considered wages and subject to California Personal Income Tax (PIT) withholding. California wages include, but are not limited to, salaries, bonuses, commissions, fees (except fees paid to public officials), and payments in forms other than checks or cash. Wages in any form other than checks or cash are measured by the fair market value of the goods, lodging, meals, or other compensation given in payment for the employee's services.

 

How to Determine Which Wages Require PIT Withholding

Most wages require California PIT withholding. In order to determine which wages require PIT withholding, refer to the “Types of Employment” table on page 16 and the “Types of Payments” table on page 26. These tables identify special classes of employment and special types of payments and their treatment for UI, ETT, SDI, and California PIT wages and withholding. Also refer to “Who Is an Employee” on page 7.

 

To obtain information sheets for specific industries and types of services, access EDD’s Web site at www.edd.ca.gov/taxrep/taxform.htm#publications, call our automated Fax on Demand system at (877) 547-4503, or contact the Taxpayer Assistance Center at (888) 745-3886. If outside U.S. or Canada call, (916) 464-3502.

 

MARITAL STATUS, WITHHOLDING ALLOWANCES, AND EXEMPTIONS (FORM W-4 AND DE 4)

An Internal Revenue Service (IRS) Employee's Withholding Allowance Certificate (Form W-4) is normally used for California PIT withholding. However, if an employee wants to claim a different marital status and/or a different number of allowances than are claimed for federal withholding purposes, the employee must file an Employee’s Withholding Allowance Certificate  (DE 4). For instance, California recognizes the “Head of Household” status, and an employee would need to file a DE 4 to claim that status.

 

If employees expect to itemize deductions on their California income tax return, they can claim additional withholding allowances, which are greater than their regular withholding allowances. When reduced withholding amounts are appropriate because of large amounts of itemized deductions, employees must complete a DE 4, including the attached worksheets, to support additional allowances for the itemized deductions. An online DE 4 calculator is available at www.taxes.ca.gov/de4.xls (requires Microsoft Excel). For information on treatment of additional withholding allowances for estimated deductions, refer to “Instructions for Additional Withholding Allowances for Estimated Deductions” on page 36 and the “Estimated Deduction” table on page 38.

 

Use of the DE 4 is optional; however, if employees provide you with a DE 4, you must use it to determine their California PIT withholdings. To obtain copies of the DE 4, access EDD’s Web site at www.edd.ca.gov/taxrep/de4.pdf, call our automated Fax on Demand system at (877) 547-4503, contact the Taxpayer Assistance Center at (888) 745-3886, or use the online calculator as mentioned above.

 

Employees may request that no California PIT be withheld if they:

 

• Incurred no liability for federal income tax for the preceding taxable year; and

• Anticipate that no federal income tax liability will be incurred for the current taxable year.

 

[checkbox] Action Required: Each employee must complete a Form W-4 for federal and California withholding. If the employee wants to claim a different marital status and/or different number of allowances for California PIT withholding, the employee also must complete a DE 4.

 

If

Then

Employee does not file a DE 4

You must use the marital status and allowances claimed (including any additional allowances) by the employee on the federal Form W-4 to calculate the employee's California PIT withholding.

 

Exception: Do not withhold any California PIT from wages of employees who have filed "EXEMPT" on their Form W-4 unless you receive a written notice from IRS or Franchise Tax Board (FTB) to withhold at a special rate. To maintain "EXEMPT" status, the employee must file a new Form W-4 each year on or before February 15.

Employee files a DE 4

You must use the DE 4 to calculate and witthold California PIT.

Employee's marital status cannot be determined from the Form W-4 or DE 4

Request the employee correct the Form W-4 or DE 4 or submit a new one. Until the new or corrected form is received, consider the employee as single with zero withholding allowances for California PIT withholding purposes.