EDD payroll taxes at termination
Updated
Independent editorial team. Every numeric claim cites a primary source — IRS / agency publication, federal or state statute, or controlling case law.
The four EDD payroll taxes: who pays what
California’s Employment Development Department administers four distinct payroll taxes that touch every termination paycheck. Two are funded entirely by the employer and never appear as a line item on the employee’s pay stub; two are funded by the employee and show up directly as withholding lines. Understanding which is which is the first step to reading a California final paycheck.
The two employer-side taxes are Unemployment Insurance (UI) and Employment Training Tax (ETT). UI funds the state unemployment-benefit system that a laid-off worker may later claim against. ETT funds workforce training programs administered through the California Workforce Development Board. Both are computed on a low $7,000-per-employee annual wage base, which means most employees exhaust the base in the first month or two of the calendar year — after which the employer pays $0 in further UI and ETT contributions for that employee, regardless of how much more the employee earns. This is why a mid-year layoff paycheck typically generates $0 employer UI/ETT cost even on a large severance.
The two employee-side taxes are State Disability Insurance (SDI) and Personal Income Tax (PIT) withholding. SDI is a flat percentage (1.3% for 2026) of all wages with no upper limit after SB 951; PIT is the state-side counterpart to federal income tax withholding and on a separation paycheck typically uses the supplemental flat rates of 6.6% or 10.23% rather than the standard DE 4 graduated tables. These two lines are visible on the employee’s pay stub, and together they account for nearly all California-side tax taken out of a final paycheck. Federal FICA (OASDI 6.2% and Medicare 1.45%) sits next to them on the federal side; FICA is not an EDD tax and is administered through the IRS rather than the EDD.
The PIT rules at termination are the most layered of the four and are covered in detail in the supplemental-wage-withholding and federal-vs-CA-withholding pages elsewhere in this hub. This page concentrates on the three less-discussed taxes — UI, ETT, and SDI — and ends with a short summary of how PIT interacts with them, including the WARN-payment exception that splits the four taxes apart.
UI (Unemployment Insurance) — employer-side
Unemployment Insurance is the largest of the four EDD taxes by dollar volume across the California economy and the one most directly tied to a layoff event. The tax is paid entirely by the employer. Employees never see a UI line on their pay stub — but the cumulative UI contributions paid by their employers over the prior 18 months are what build the wage base used to compute the UI benefit a laid-off worker may later receive. This is the structural reason why UI funding and UI benefits sit in the same EDD program.
Per the EDD’s 2026 Contribution Rates and Withholding page, the UI taxable wage limit is $7,000 per employee, per calendar year. That is the same wage base California has used for decades; it has not changed for 2026. The contribution rate is experience-rated, set annually for each employer based on its layoff history (Cal. Unemp. Ins. Code § 977 and the Schedule F+ table). For 2026, the EDD publishes that Schedule F+ provides for UI contribution rates from 1.5 percent to 6.2 percent. A new employer with no layoff history is assigned a flat 3.4 percent UI rate for the first two to three years per Cal. Unemp. Ins. Code § 982 until enough payroll experience accumulates to set an experience-rated rate.
In dollar terms, the UI cost to an employer ranges from $105 (1.5% × $7,000) to $434 (6.2% × $7,000) per employee per year, regardless of how much that employee actually earns. A California employee earning $50,000 and one earning $500,000 generate identical UI contributions to the EDD because both fully exhaust the $7,000 wage base before March. The consequence at termination is that on most mid-year or late-year layoff paychecks, the employer has already paid $0 of its current-year UI obligation on this employee before the severance is cut — UI cost on the severance itself is zero. This is true even for a $200,000 severance.
A layoff does have a downstream effect on the employer’s UI rate. UI benefits actually claimed by the laid-off worker are charged back to the former employer’s reserve account, which over the subsequent rate-setting cycles can shift that employer’s UI rate up within the 1.5% to 6.2% range. Severance itself does not directly trigger this — UI benefit claims by the employee do. The mechanics are governed by Cal. Unemp. Ins. Code §§ 977-982 and the EDD’s annual rate-setting process described in DE 44.
ETT (Employment Training Tax) — employer-side
Employment Training Tax is the smallest of the four EDD taxes. Per the EDD’s 2026 Contribution Rates and Withholding page, the ETT rate for 2026 is 0.1 percent, applied to the same $7,000 per-employee annual wage base as UI. The taxable wage limit is $7,000 per employee, per calendar year. The maximum ETT cost to an employer per employee is therefore $7 per year — 0.1% × $7,000. The tax is paid entirely by the employer; employees pay nothing and never see an ETT line on their pay stub.
ETT proceeds fund the Employment Training Panel, which provides post-hire training grants to California employers to upgrade workers’ skills. The California Workforce Development Board oversees the program. From the perspective of a terminated employee, ETT is essentially invisible — it is a small additional cost the employer pays alongside UI on the same wage base, and it has no impact on the employee’s severance, pay stub, or future UI benefit eligibility.
A subset of California employers do not pay ETT. Employers with delinquent UI accounts or otherwise non-positive reserve balances are designated "ETT exempt" by the EDD and are charged a 0.0% ETT rate for the year. The exempt status is determined annually as part of the EDD’s rate-setting cycle. For a typical good-standing California employer, ETT is the 0.1% line that sits next to UI on the employer’s DE 9 quarterly contribution return; for the employee, it never surfaces.
As with UI, ETT cost on a termination paycheck is almost always zero because the wage base has long since been exhausted. An employee receiving a $30,000 severance mid-year has typically generated their full $7 of ETT cost in February and contributes nothing further to the employer’s ETT liability through the rest of the year, including on the severance itself.
SDI (State Disability Insurance) — employee-side
State Disability Insurance is the EDD tax that draws the most direct attention on a final California paycheck. It is funded entirely by the employee through a flat-percentage withholding from every dollar of wages. SDI proceeds fund two state benefit programs: Disability Insurance (DI), which pays partial wage replacement to California workers who cannot work due to a non-work-related illness or injury, and Paid Family Leave (PFL), which pays partial wage replacement for time off to bond with a new child or care for a seriously ill family member. Both DI and PFL are administered by the EDD’s State Disability Insurance branch.
The 2026 SDI rate is 1.3 percent per the EDD’s Contribution Rates and Withholding page. The rate is reset annually by the EDD based on actuarial projections of the DI Fund balance and projected DI/PFL benefit payouts. The 2026 figure represents an increase from the 2025 rate of 1.2% — reflecting continued elevated benefit usage following PFL expansions and the 2024 elimination of the SDI wage base.
The most important structural change to SDI in the past decade is the elimination of the taxable-wage cap. Senate Bill 951 (Durazo, 2022) repealed the SDI taxable-wage ceiling effective January 1, 2024. Before SB 951, SDI applied only up to an annual wage cap (around $153,164 in 2023, the final cap year); above the cap, no further SDI was withheld for the year. From 2024 forward, SDI applies to every dollar of wages with no upper limit. For a high-income California employee receiving a large severance, the practical effect is significant — a $300,000 severance now generates $3,900 of SDI withholding in 2026 (1.3% × $300,000), whereas pre-2024 the same payment would have hit the wage cap and stopped accruing SDI partway through.
SDI applies to supplemental wages including severance — the same treatment as regular wages. EDD DE 231PS lists severance among the supplemental wage categories subject to SDI withholding, and the absence of any wage-base cap means there is no scenario in which a severance escapes SDI by virtue of the employee’s prior year-to-date earnings (the way OASDI can be exhausted by the federal Social Security wage base). The 1.3% rate applies dollar for dollar from the first dollar of wages through the last dollar of severance.
PIT withholding and the WARN-payment exception
Personal Income Tax withholding is the California-side counterpart to federal income tax withholding. The legal obligation is set out in Cal. Unemp. Ins. Code § 13020, which requires every employer paying wages to a California-resident employee (or to a nonresident for services performed in California) to deduct and withhold a tax computed under the methods prescribed by the Franchise Tax Board. On a typical termination paycheck, PIT withholding is computed under the supplemental wage rules described in EDD DE 231PS: 6.6% on severance, commissions, vacation payouts, and other "other supplemental" categories, and 10.23% on bonuses and stock-option payments. The mechanics of the 6.6% / 10.23% split and the federal layering on top are detailed in the supplemental-wage-withholding and federal-vs-CA-withholding pages — this section will not re-cover them.
What distinguishes PIT from the three other EDD taxes is its treatment of one specific termination payment: WARN Act back-pay. Both the federal WARN Act (29 U.S.C. ch. 23) and the California WARN Act (Cal. Lab. Code § 1400 et seq.) require employers of a qualifying size to give 60 days’ advance written notice of a mass layoff or plant closure. An employer that fails to comply with the notice requirement is liable to each affected employee for back pay covering the days of notice that were not given — up to 60 days. The EDD’s DE 231PS information sheet sets out specific tax treatment for those WARN back-pay payments.
Per DE 231PS, WARN back-pay payments are not subject to UI, ETT, or SDI — they are excluded from the three EDD taxes that otherwise apply to wages. They are, however, subject to PIT withholding, and the EDD instructs employers to report them as PIT wages on the DE 9C quarterly wage-and-withholding return. In practical terms, a lump-sum WARN payment is processed at payroll like a supplemental wage for income-tax purposes (most commonly at the 6.6% PIT rate, since WARN pay is back pay rather than a bonus) but bypasses the UI, ETT, and SDI computations entirely. This is a narrow but consequential carve-out — for a $20,000 lump-sum WARN payment, the SDI bypass alone saves the employee $260 (1.3% × $20,000) compared to a generic severance payment of the same size.
A useful summary table for a layoff paycheck: regular final wages and severance are subject to all four EDD taxes (UI/ETT through the $7,000 wage base, SDI and PIT in full). Bonuses and stock are subject to all four EDD taxes at the higher 10.23% PIT rate. WARN back-pay is subject only to PIT (the 6.6% rate typically applies), with UI / ETT / SDI all excluded. The rest of the federal layer — 22% / 37% supplemental, OASDI, Medicare — is independent of these EDD distinctions and continues to apply per IRS Pub 15 § 7 regardless of whether the EDD treats the payment as exempt from UI/ETT/SDI.
Worked example
| Component | Employer pays (EDD) | Employee withholding |
|---|---|---|
| UI (1.5%–6.2% × $7,000; wage base exhausted earlier in year) | $0 (wage base exhausted) | — |
| ETT (0.1% × $7,000; wage base exhausted earlier in year) | $0 (wage base exhausted) | — |
| CA SDI (1.3% × $45,000 gross wages, no cap) | — | $585.00 |
| CA PIT — $10,000 regular wages (DE 4 graduated tables) | — | Per DE 4 tables |
| CA PIT — $30,000 severance (6.6% supplemental) | — | $1,980.00 |
| CA PIT — $5,000 bonus (10.23% supplemental) | — | $511.50 |
| Federal supplemental — $35,000 (severance + bonus, 22%) | — | $7,700.00 |
| Federal regular — $10,000 final wages (IRS withholding tables) | — | Per Pub 15-T |
| FICA OASDI (6.2% × $45,000, assuming under 2026 $184,500 wage base) | $2,790.00 (employer match) | $2,790.00 |
| FICA Medicare (1.45% × $45,000, no cap) | $652.50 (employer match) | $652.50 |
| EDD employee withholding subtotal (SDI + CA PIT supplemental) | — | $3,076.50 (+ DE 4 amount on regular wages) |
Numbers are illustrative withholding amounts only and do not represent final tax liability. The example assumes year-to-date wages for the laid-off employee already exceed $7,000, so the employer’s UI and ETT contributions on this paycheck are zero. SDI applies to all $45,000 of gross wages on this check because SB 951 eliminated the SDI taxable-wage cap effective January 1, 2024. PIT on the $10,000 of regular final wages follows the standard DE 4 graduated tables and varies by the employee’s DE 4 elections; this row is shown as "Per DE 4 tables" rather than a fixed dollar amount. The 22% federal supplemental rate from IRS Pub 15 § 7 applies to the $35,000 of supplemental wages (severance + bonus); the additional Medicare surtax of 0.9% would apply if cumulative Medicare wages for the year cross $200,000 with this employer (not assumed in this example). Final tax is reconciled on Form 1040 and Form 540 at filing time.
Calculate your California severance
Inputs default to California; adjust to your specifics.
Your situation
Informational only. Not legal, tax, or financial advice. The numbers below are benchmarks based on the inputs you provided; your actual outcome depends on your jurisdiction, plan terms, and individual circumstances. Always consult a licensed employment attorney before signing a separation agreement that waives statutory claims (ADEA, Title VII, WARN, state mini-WARN).
Severance benchmarks
Typical benchmark
$21,635
7.5 weeks · methodology: benchmarks are derived from publicly reported severance norms across us corporate layoffs. weeks/year scale with role level; tenure <1 year gets a floor; cap at 52 weeks. these are negotiation reference points, not promises.
| Band | Weeks | Gross |
|---|---|---|
| Typical | 7.5 | $21,635 |
| Good | 12.5 | $36,058 |
| Aggressive | 20.0 | $57,692 |
Tax breakdown (typical band)
| Gross | $21,635 |
| Federal supplemental | −$4,760 |
| State supplemental | −$1,428 |
| FICA — Social Security | −$1,341 |
| FICA — Medicare | −$314 |
| FICA — Additional Medicare | −$0 |
| Net cash | $13,792 |
Social Security withholding assumes a year-end layoff. If you're laid off earlier in the year and your salary exceeds the $184,500 Social Security wage base, your actual SS withholding will be higher and net cash lower than shown.
WARN Act
Not a group layoff
OWBPA review window
Individual exit (21-day review window) under the Older Workers Benefit Protection Act, plus 7-day revocation right.
Review window: 21 days · Revocation: 7 days after signing
COBRA cost
Monthly: $0
Annual: $0
Enter your employer-side monthly premium for an estimate.
Equity at termination
Forfeited unvested: $0
ISO exercise window post-termination: 90 days
- ISO holders: you typically have 90 days post-termination to exercise vested ISOs before they convert to NSOs.
Frequently asked
Why don’t I see UI or ETT on my California paycheck?
Because UI and ETT are paid entirely by your employer. They are not employee taxes and they do not appear as withholding lines on your pay stub. The amounts are reported to the EDD on the employer’s DE 9 quarterly contribution return rather than itemized to you. The only EDD lines you should see on a California pay stub are CA SDI (1.3% in 2026) and CA PIT withholding (graduated for regular wages, 6.6% or 10.23% flat for supplemental wages).
Does CA SDI still apply if I’ve already crossed the federal Social Security wage base?
Yes. CA SDI and federal OASDI are separate taxes with separate wage bases. OASDI stops applying once year-to-date wages cross $184,500 (the 2026 Social Security wage base). SDI has no taxable-wage cap since SB 951 took effect January 1, 2024, so it continues to apply at 1.3% on every dollar of wages including a high-end severance regardless of how much OASDI you have already paid for the year.
How does the UI tax I never paid fund the unemployment benefits I might collect?
UI is funded by employers, not employees. Your employer pays a UI contribution rate (between 1.5% and 6.2% in 2026 for established employers, 3.4% for new employers per Cal. Unemp. Ins. Code § 982) on the first $7,000 of your annual wages each year. Those contributions accumulate in the EDD’s UI Fund. When you file a UI claim, your benefit amount is computed from your wage history over the prior 18 months — the wages that your employers paid contributions against. You never personally contribute to UI, but your wage history determines the benefit amount the UI Fund pays out to you.
Is severance subject to all four EDD taxes?
Regular severance is subject to all four. UI and ETT cost is typically zero on a mid-year or late-year layoff because the $7,000 wage base for each is already exhausted, but the legal subjection is still in place. SDI applies in full at 1.3% with no wage cap. PIT applies under the supplemental rules — 6.6% for severance, 10.23% for any bonus or stock component. The only common termination payment not subject to all four is WARN Act back pay, which per EDD DE 231PS is excluded from UI, ETT, and SDI but remains subject to PIT.
Are WARN Act back-pay payments subject to UI, ETT, or SDI?
No. Per EDD DE 231PS, WARN Act back-pay payments are excluded from UI, ETT, and SDI. They are, however, subject to PIT withholding and must be reported as PIT wages on the employer’s DE 9C return. In practice this means a lump-sum WARN payment is processed at payroll like a supplemental wage for income-tax withholding purposes (typically at the 6.6% CA PIT supplemental rate plus the 22% federal supplemental rate) but bypasses the three other EDD taxes entirely.
What’s the difference between CA SDI and federal Social Security (OASDI)?
They are separate taxes that fund separate benefit programs. OASDI is a federal FICA tax of 6.2% on the employee side, capped at the annual Social Security wage base ($184,500 for 2026), that funds federal Social Security retirement, survivors, and disability benefits administered by the Social Security Administration. CA SDI is a state-only tax of 1.3% in 2026 on the employee side with no taxable-wage cap that funds California Disability Insurance and Paid Family Leave benefits administered by the EDD. Both apply on the same paycheck — the OASDI line and the CA SDI line are distinct, and most California employees pay both simultaneously until the OASDI wage base is exhausted for the year (after which only CA SDI continues).
Does my employer’s UI rate go up because I was laid off?
Indirectly, yes — but the trigger is your UI benefit claim, not the layoff itself. UI benefits actually paid out to you are charged against your former employer’s UI reserve account. Over the subsequent annual rate-setting cycles administered by the EDD under Cal. Unemp. Ins. Code §§ 977-982, those charges can shift the employer’s contribution rate higher within the 1.5% to 6.2% range. The severance the employer pays at termination has no direct effect on its UI rate — only the UI claim you file (or do not file) afterward feeds into the rate calculation.
Sources
- EDD DE 44 (2026) — California Employer’s Guide (Contribution Rates, Withholding Schedules, and Meals and Lodging Values) · EDD
- EDD — Contribution Rates and Withholding Schedules (2026) · EDD
- EDD DE 231PS — Personal Income Tax Withholding: Supplemental Wage Payments (WARN Act Payments section) · EDD
- Cal. Unemp. Ins. Code § 13020 — Personal income tax withholding obligation · CA Labor Code
- Cal. Unemp. Ins. Code § 977 — Employer contribution rate schedules · CA Labor Code
- Cal. Unemp. Ins. Code § 982 — New employer 3.4% contribution rate · CA Labor Code
- IRS Publication 15 (Circular E), § 7 — Supplemental Wages · IRS