California withholds state personal income tax on bonuses and stock-option payments at 10.23% and on other supplemental wages — including severance, commissions, and back pay — at 6.6%, per EDD DE 44 (2026). Federal supplemental withholding adds a separate 22% layer, rising to a mandatory 37% on cumulative supplemental wages above $1 million in the calendar year per IRS Pub 15 § 7. These rates govern paycheck withholding only; final tax liability is reconciled on Form 1040 and Form 540.
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A California severance paycheck typically stacks five withholding layers: federal supplemental at 22% (rising to 37% on cumulative supplemental wages above $1 million per IRS Pub 15 § 7), California supplemental at 6.6% on severance and 10.23% on bonus and stock components per EDD DE 231PS, FICA OASDI at 6.2% up to the 2026 Social Security wage base of $184,500, Medicare at 1.45% with a 0.9% surtax above $200,000 single or $250,000 MFJ, and CA SDI at 1.3% in 2026 with no taxable-wage cap since SB 951 took effect in 2024. The flat rates govern paycheck deposits; final federal and California tax is reconciled on Form 1040 and Form 540 at filing time.
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California’s Employment Development Department administers four payroll taxes that surface on or behind a final paycheck. Two are employer-side and never appear on the employee’s pay stub: Unemployment Insurance (UI) at a 1.5% to 6.2% rate range (3.4% for new employers per Cal. Unemp. Ins. Code § 982) on the first $7,000 of each employee’s annual wages, and Employment Training Tax (ETT) at 0.1% on the same $7,000 wage base. Two are employee-side and visible on the pay stub: State Disability Insurance (SDI) at 1.3% for 2026 per EDD with no taxable-wage cap since SB 951, and Personal Income Tax (PIT) withholding at the supplemental rates of 6.6% (severance, commissions) and 10.23% (bonuses, stock). WARN Act back-pay payments are a notable exception — per EDD DE 231PS they are not subject to UI, ETT, or SDI, but are subject to PIT withholding.
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California Labor Code § 201 requires wages earned and unpaid at the time of discharge to be paid immediately. Cal. Lab. Code § 202 gives an employee who quits without 72 hours’ notice up to 72 hours to be paid, and requires immediate payment when the employee has given 72 hours’ notice. Cal. Lab. Code § 203 imposes a waiting-time penalty — one day’s wages for each day the employer is late, capped at 30 days — for willful failure to pay in accordance with §§ 201 or 202. Severance itself is not "wages" for § 203 timing purposes, but earned and unpaid commissions, overtime, and accrued vacation are.
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Cal. Lab. Code § 227.3 treats earned vacation as wages payable at the final rate when an employee is terminated; an employment contract or employer policy "shall not provide for forfeiture of vested vacation time upon termination." Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774 established that vacation vests proportionally as labor is performed. Reasonable accrual caps are permitted by the DLSE; "use it or lose it" forfeiture is not. Sick leave under Cal. Lab. Code § 246 is separately governed and is NOT required to be paid out at separation. PTO payouts withhold at the California 6.6% supplemental rate (other supplemental wages per EDD DE 231PS) — not the 10.23% bonus rate — plus 22% federal supplemental, FICA, and California SDI.
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California employers of 75 or more must give 60 days written notice of a mass layoff, relocation, or termination at a covered establishment under Cal. Lab. Code §§ 1400–1408. The federal WARN Act (29 U.S.C. § 2102) only applies at 100+ full-time employees and requires either 50+ affected at a single site of employment AND at least 33% of the active workforce, or 500+ regardless of percentage. Cal-WARN has no 33%-of-workforce floor and counts any 50 or more in a 30-day period at one covered establishment. Both require 60 days notice. Penalties: federal back pay and benefits for up to 60 days under § 2104; Cal-WARN adds a civil penalty of up to $500 per day under § 1403 on top of the same back-pay-and-benefits liability under § 1402.
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California Unemployment Insurance Code § 1265 provides that benefits "shall not be denied or reduced because of the receipt of payments" under an employer plan supplementing unemployment compensation. The EDD applies § 1265 to severance regardless of payment structure — lump sum, installments, and salary-continuation severance are all protected. The recipient still must satisfy the eligibility rules in §§ 1252 and 1253: unemployed, able to work, available for work, registered with the EDD, and actively searching. The 2026 maximum weekly benefit is $450 per week per EDD. Wages in lieu of notice and salary continuation that maintains employee status are NOT severance for § 1265 purposes and may delay or reduce UI.
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California voids most post-employment non-competes under Cal. Bus. & Prof. Code § 16600 — read broadly per Edwards v. Arthur Andersen LLP (2008) and § 16600(b)(1). SB 699 (2023, effective Jan. 1, 2024) added § 16600.5, which makes a void non-compete unenforceable "regardless of where and when the contract was signed" and gives the employee a private right of action for damages plus attorney's fees. AB 1076 (2023, effective Jan. 1, 2024) added § 16600.1, requiring employers to send written notice by February 14, 2024 to current and former employees whose contracts contained void non-compete provisions. Limited exceptions exist for sale of business (§ 16601) and partnership/LLC dissolution (§§ 16602, 16602.5) — none cover an ordinary layoff. Severance-agreement non-compete release clauses in California are usually unenforceable on their face.
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IRC § 409A governs nonqualified deferred compensation. Standard severance — lump sum at separation, or two years or less of installments capped at twice annual compensation — typically meets the separation-pay exception in 26 CFR § 1.409A-1(b)(9) and falls outside § 409A entirely. Public-company "specified employees" must wait six months after separation under § 409A(a)(2)(B)(i) and 26 CFR § 1.409A-3(i)(2) for payments that do not fit the safe harbor. California incorporates IRC § 409A through Cal. Rev. & Tax Code § 17501, so a federal violation is also a California violation: accelerated income recognition at vesting plus a 20% federal additional tax plus a 20% California additional tax plus premium interest. The safe harbor is generously drawn; most severance packages are designed to live inside it. This page is educational, not tax advice — consult a tax advisor or ERISA attorney for arrangements that may not fit the safe harbor.
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Three retirement-account decisions cluster around a California separation. First, CalSavers — the state-run auto-enrollment Roth IRA established by the CalSavers Retirement Savings Trust Act (Cal. Gov. Code § 100000 et seq.) — defaults to a 5% contribution rate with automatic 1%/year escalation to 8%, is fully portable, and stays with the participant after leaving the employer. Second, a 401(k) at separation has four options: leave with former employer (if the balance exceeds the mandatory cash-out threshold of $7,000 under 26 U.S.C. § 411(a)(11) as amended by SECURE 2.0), roll to a new employer 401(k), roll to a traditional or Roth IRA, or take cash (with the 20% mandatory federal withholding under 26 U.S.C. § 3405(c) plus a 10% early-withdrawal penalty if under age 59½). Third, if a 401(k) loan is outstanding at separation, the unpaid balance offsets against the account — but TCJA added 26 U.S.C. § 402(c)(3)(C), extending the rollover deadline for a "qualified plan loan offset" (QPLO) from 60 days to the due date of the federal return (including extensions) for the year of offset. This page is educational, not financial or tax advice; retirement decisions are high-stakes and should be reviewed with a financial planner or tax advisor.
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