California 10.23% supplemental wage withholding
Updated
Independent editorial team. Every numeric claim cites a primary source — IRS / agency publication, federal or state statute, or controlling case law.
What counts as supplemental wages in California
California treats payments made outside the regular payroll cycle as supplemental wages. The EDD Information Sheet on Personal Income Tax Withholding — Supplemental Wage Payments (DE 231PS) lists the common categories: bonuses, stock option exercises, restricted stock unit (RSU) vesting income, commissions, overtime pay, accrued vacation paid at separation, sick-leave payouts, retroactive pay increases, awards, prizes, and severance pay. Each of these is treated as wages subject to California personal income tax withholding under Cal. Unemp. Ins. Code § 13020.
The classification matters because California allows employers to apply a flat-rate withholding method to supplemental payments rather than the standard graduated tables that apply to regular paychecks. The flat rate is convenient for payroll but produces a known mismatch with the employee’s graduated tax liability, especially at the top and bottom of the income distribution. Severance is the most common reason a California employee will see a supplemental-rate line on a paycheck stub.
A federal supplemental classification is not automatic for state purposes — but in practice California aligns its supplemental-wage list with the federal categories described in IRS Pub 15 § 7. If a payment is treated as supplemental federally, the EDD treats it as supplemental for California withholding as well.
The two California rates: 6.6% and 10.23%
California publishes two supplemental withholding rates in DE 44 (the annual California Employer’s Guide). The default rate on supplemental wages is 6.6% — this covers severance, commissions, overtime, vacation payouts, retroactive raises, and other non-bonus supplemental payments. The higher 10.23% rate applies specifically to bonuses and stock option payments, including the ordinary-income portion of an RSU vesting event and any cash bonus paid as part of a layoff package.
These rates are flat: they do not change with the size of the payment or the employee’s annual wages. A California employee earning $40,000 a year and one earning $400,000 a year both see their bonus withheld at 10.23% on the state side, no matter what marginal income-tax bracket they ultimately fall into when they file Form 540. The rate is also independent of the employee’s DE 4 elections — the flat supplemental rate is a default that applies when the payment is identified separately on the payroll. (Employers may apply the aggregate method instead, which folds the supplemental payment into the regular paycheck and applies graduated tables to the combined amount.)
The distinction between 6.6% and 10.23% is the most common source of confusion on California paycheck stubs. A laid-off employee receiving severance plus an accrued retention bonus on the same final paycheck will see two different state-withholding rates applied: 6.6% on the severance component and 10.23% on the bonus component. This is correct per DE 44 and is not a payroll error.
How federal and California layers stack
California supplemental withholding is layered on top of federal supplemental withholding, not in place of it. The federal flat rate under IRS Pub 15 § 7 is 22% on cumulative supplemental wages paid to the employee during the calendar year, increasing to a mandatory 37% on amounts above $1 million cumulative. The federal rate applies uniformly across all categories of supplemental wages — federal tax does not distinguish bonuses from severance the way California does.
FICA continues to apply normally. The OASDI component (6.2% employee) applies up to the Social Security wage base, which is $184,500 for 2026 per the Social Security Administration’s annual cost-of-living announcement. Medicare (1.45% employee) applies to all wages without a cap, and the additional 0.9% Medicare surtax applies once cumulative Medicare wages cross $200,000 (single) or $250,000 (married filing jointly) for the year.
California State Disability Insurance (SDI) is the California-specific layer. SB 951 (2022) eliminated the SDI taxable-wage cap effective January 1, 2024, so SDI now applies to all wages including supplemental payments with no taxable-wage cap. The SDI withholding rate for 2026 is 1.3% per the EDD Contribution Rates page; this rate is set annually.
A California severance check that bundles regular wages, severance pay, and a retention bonus therefore stacks five separate withholding lines on the state-plus-federal side: federal 22% supplemental, California 6.6% (on severance) and 10.23% (on the bonus), OASDI, Medicare, and CA SDI. Plus any additional Medicare surtax once the high-income threshold is crossed.
Withholding is not the same as final tax
The 22% federal and 6.6% / 10.23% California flat rates are withholding mechanics, not statements of tax liability. The withheld amount is a deposit against the employee’s actual federal and California income tax for the year, which is computed using graduated tables on Form 1040 and Form 540 and reconciled when the return is filed.
For a severance recipient whose California marginal bracket is 9.3% or 10.3%, 6.6% supplemental withholding under-withholds and the employee will owe additional California tax at filing time. For an employee whose California marginal bracket is 4% or below, 6.6% over-withholds and produces a refund. The same logic applies federally: 22% under-withholds for employees in the 24%, 32%, 35%, or 37% federal bracket and over-withholds for employees in the 10% or 12% bracket.
Because severance often arrives in a lower-earning year (the layoff year, with no W-2 income after termination), the under- or over-withholding effect is usually less severe than the bracket comparison suggests. Final liability depends on full-year wages, deductions, credits, and filing status — none of which the flat supplemental rate accounts for.
When to expect over- or under-withholding
A simplified worked example: a $50,000 severance paid to a California employee whose total taxable income for the year places them in the 24% federal bracket and the 9.3% California bracket will be under-withheld at both layers. State withholding at 6.6% produces $3,300, but the marginal California tax on that slice approaches $4,650 — a gap of roughly $1,350 that the employee will owe (or that an unrelated refund will offset) when filing Form 540. Federally, the 22% rate produces $11,000 of withholding against an approximate $12,000 marginal tax, leaving a smaller gap.
The same $50,000 severance paid to a California employee in the 12% federal bracket and the 4% California bracket over-withholds at both layers. Federal withholding at 22% produces $11,000 against a roughly $6,000 marginal tax; California withholding at 6.6% produces $3,300 against roughly $2,000 marginal tax. The employee should expect a sizable refund on filing.
Employees who anticipate a meaningful gap in either direction can adjust their other-paycheck withholding through Form W-4 (federal) and Form DE 4 (California). The flat supplemental rate is the default for a separately identified supplemental payment; it is not a ceiling on additional voluntary withholding the employee can request on other paychecks. A mid-year W-4 / DE 4 review at the time of a layoff is the standard practical response.
Worked example
| Component | Federal withholding | California withholding |
|---|---|---|
| $50,000 severance | $11,000.00 (22% supplemental) | $3,300.00 (6.6% other supplemental) |
| $20,000 bonus | $4,400.00 (22% supplemental) | $2,046.00 (10.23% bonus/stock) |
| OASDI (6.2% employee, to 2026 SSA wage base $184,500) | $4,340.00 (6.2% × $70,000) | — |
| Medicare (1.45% employee, no cap) | $1,015.00 (1.45% × $70,000) | — |
| CA SDI (2026: 1.3% employee, no taxable-wage cap since SB 951) | — | $910.00 (1.3% × $70,000) |
| Subtotal withheld | $20,755.00 | $6,256.00 |
Numbers are illustrative withholding amounts only and do not represent final tax liability. Final tax is reconciled on Form 1040 (federal) and Form 540 (California). FICA OASDI applies up to the 2026 Social Security wage base of $184,500; Medicare applies to all wages, and an additional 0.9% Medicare surtax applies once cumulative Medicare wages cross $200,000 single / $250,000 MFJ. CA SDI applies to all wages with no taxable-wage cap as of SB 951 (effective 2024); the 2026 employee contribution rate is 1.3% per EDD. The example assumes cumulative supplemental wages remain under the $1 million federal threshold; above that, the federal supplemental rate is a mandatory 37% per IRS Pub 15 § 7.
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 does California withhold 10.23% on my bonus but 6.6% on other supplemental pay?
California publishes two separate flat supplemental rates in DE 44. The 10.23% rate is specific to bonuses and stock option payments, and the 6.6% rate covers all other supplemental wages — severance, commissions, overtime, vacation payouts, and back pay. The split is set by EDD and applied at the payroll layer; it is not a tax-liability decision by your employer.
Is 10.23% the actual tax I owe or just withholding?
It is withholding only. The 10.23% (and 6.6%) rates are paycheck-mechanics defaults that produce a deposit against your final California tax. Your actual California tax is computed on Form 540 using graduated brackets, and any over- or under-withholding is reconciled when you file.
Does the 22% federal rate apply to my whole severance?
The 22% flat federal supplemental rate from IRS Pub 15 § 7 applies to your supplemental wages up to $1 million cumulative for the calendar year, and a mandatory 37% rate applies to any cumulative supplemental wages above that threshold. Most severance recipients stay below the $1 million ceiling, so 22% is the rate they see on a paycheck.
How is my severance taxed if I move out of California before receiving it?
California generally taxes wages earned for services performed in California regardless of the employee’s residency at the time the payment is received. FTB Pub 1031 explains residency rules and source-of-income rules in detail. Severance attributable to California service is usually California-source income even if the employee has relocated by the time the check is cut.
Are stock option exercises withheld at 10.23%?
Yes — DE 44 explicitly groups stock option payments with bonuses for the 10.23% rate. The withholding applies to the ordinary-income spread on a non-qualified stock option exercise and to the ordinary-income portion of RSU vesting income that flows through payroll.
Can I ask my employer to withhold extra to cover the gap?
Yes. You can adjust your other-paycheck withholding using Form W-4 for federal and Form DE 4 for California. The flat supplemental rate is the default for a separately identified supplemental payment; it does not prevent your employer from honoring additional voluntary withholding requests on other paychecks.
Does CA SDI come out of severance?
SDI applies to supplemental wages including severance. SB 951 eliminated the SDI taxable-wage cap effective January 1, 2024, so SDI is now withheld on all wages with no taxable-wage cap. The 2026 SDI employee contribution rate is 1.3% per EDD.
Sources
- EDD DE 44 (2026) — California Employer’s Guide (Contribution Rates, Withholding Schedules, and Meals and Lodging Values) · EDD
- EDD DE 231PS — Personal Income Tax Withholding: Supplemental Wage Payments · EDD
- IRS Publication 15 (Circular E), § 7 — Supplemental Wages · IRS
- Cal. Unemp. Ins. Code § 13020 — Personal income tax withholding obligation · CA Labor Code
- FTB Pub 1031 (2024) — Guidelines for Determining Resident Status · FTB
- SSA — Contribution and Benefit Base (2026 Social Security wage base) · Other