If you will have employees:
- Apply for an employee identification number with the Employment Development Department (EDD).
- Find out about worker's compensation.
- Investigate business insurance needs.
- Get adequate business insurance or a business rider to a homeowner's policy.
- Get tax information on withholding taxes.
- Get tax information on hiring independent contractors
- Get tax information such as record keeping requirements, facts about estimating taxes, forms of organizations, etc.
- Open a bank account for the business.
Examples of when a business becomes subject:
A California corporation generally is a legal entity which exists separately from its owners. While normally limiting the owners from personal liability, taxes are levied on the corporation as well as on the shareholders. The sale of stocks or bonds can generate additional capital and the longevity of the corporation can continue past the death of the owners. Legal Counsel should be consulted regarding the variety of options available. To form a corporation in California, Articles of Incorporation must be filed with the California Secretary of State.
Limited Liability Company (LLC)
A California LLC generally offers liability protection similar to that of a corporation but is taxed differently. Domestic LLCs may be managed by one or more managers or one or more members. In addition to filing the applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the LLC and the conduct of its business is required. The LLC does not file the operating agreement with the Secretary of State but maintains it at the office where the LLC's records are kept. To form an LLC in California, Articles of Organization (Form LLC-1) must be filed with the California Secretary of State.
A sole proprietorship is set up to allow an individual to own and operate a business. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business. If a sole proprietorship is formed with a name other than the individual's name (example: John Smiths Fishing Shop), a Fictitious Business Name Statement must be filed with the county where the principal place of business is located. No formation documents are required to be filed with the California Secretary of State. Other state filings may be required depending on the type of business.
There are several agencies in the State of California that administer a variety of taxes. While other state and local agencies may issue licenses and permits and assess fees or taxes, the following is a list of state agencies that can assist you in determining your tax obligations and provide you with information about tax reporting and taxpayer rights.
Franchise Tax Board
The California Franchise Tax Board administers personal and corporate income and franchise taxes for the State of California.
Internal Revenue Service
The Internal Revenue Service issues employer federal identification numbers and administers federal payroll and income taxes, including social security, Medicare, federal unemployment insurance and federal income tax withholding.
The Employer ID Numbers (EINs) webpage provides specific information for an EIN, making a change in the application for an EIN, or canceling an EIN. http://www.irs.gov/pub/irs-pdf/fss4.pdf
Employment Development Department
The California Employment Development Department issues employer account numbers (sometimes called state employer identification numbers, SEINs, state ID numbers, or reserve account numbers) and administers California's payroll taxes, including Unemployment Insurance, Employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding.
When Does a Business Become Subject to State Payroll Taxes?
Generally, a business becomes subject to State payroll taxes upon paying wages over $100 in a calendar quarter to one or more employees. Wages consist of compensation for services performed, including cash payments, commissions, bonuses, and the reasonable cash value of noncash payments (like meals and lodging) for services. Once subject, an employer must complete and submit a registration form to EDD within 15 days. Please go to the Registration Process section below and select the link to the specific registration form for your type of business.
- A sole proprietor hires an employee during the month of March at a wage of $75 per month. The employer is subject effective April 1 since the employer did not pay the employee over $100 during the first quarter of the year (January-March) but will pay over $100 during the second quarter (April-June).
- A corporation operates without any employees except for the corporate president. The corporation is an employer and is required to register if the corporate president is paid wages of over $100 in a calendar quarter.
You will receive the following information by mail:
You can register online and, upon successful registration, you will receive a California Employer Account Number and tax rate information immediately using the expanded e-Services for Business, available from the e-Services for Business page.
Important Registration Tips!
Include your federal employer identification number (FEIN) on the registration form to ensure unemployment insurance tax credits apply correctly when claimed on your Employer's Annual FUTA Tax Return (IRS Form 940). Mail or fax your completed registration form to the address or fax number below. The address and fax number are also listed at the top of the registration form for your convenience.
Employment Development Department
Account Services Group, MIC 28
PO Box 826880
Sacramento CA 94280-0001
Fax (916) 654-9211
What Happens After EDD Receives Your Registration?
After EDD receives your registration form, you will receive an eight-digit employer account number (example: 000-0000-0), also known as a State Employer Identification Number, SEIN, State ID number, or reserve account number. This number will be printed on all reporting forms sent to you and on all notices relating to former employees. Use it in all correspondence with EDD. If a bank or payroll service prepares your return, be sure to provide them with your employer account number.
- New Employee Registry letter
- Report of New Employee(s) (DE 34)
- California Employer's Guide (DE 44)
- New employer packet that contains:
A personalized Payroll Tax Deposit (DE 88) coupon booklet will be mailed to you 4 - 6 weeks after you register.
Reporting wages paid to your employees and State Personal Income Tax (PIT) withheld from their wages.
Paying Unemployment Insurance (UI) and Employment Training Tax (ETT) on your employee’s wages, as well as withholding and remitting State Disability Insurance (SDI) and Personal Income Tax (PIT) due on wages paid to your workers (see Rates, Withholding Schedules, & Meals and Lodging Values).
You must also report all new employees to the New Employee Registry within 20 days of their start-to-work date.
If you use the services of independent contractors, you may also have to report them.
State Income Tax Withholding
Encourage your employees to withhold the correct amount of State income tax by having them fill out a California Employee's Withholding Allowance Certificate (DE 4) in addition to the federal Form W-4. You can download the DE 4. Links to the State income tax withholding schedules are available on the Rates & Withholding page.