If you’re running a business in the Golden State, you already know that "stable" isn't exactly how we’d describe the tax environment. Honestly, keeping up with the Employment Development Department (EDD) feels like a full-time job lately. For 2026, the big headlines aren't just about the usual incremental shifts. We are seeing the full weight of multi-year legislative overhauls finally hitting the bottom line.
Most of the california payroll tax news you'll hear in passing focuses on the minimum wage. Sure, the jump to $16.90 per hour on January 1 is a thing, but that’s just the tip of the iceberg. The real story is hidden in the way State Disability Insurance (SDI) has been fundamentally rebuilt and how new "stay-or-pay" laws are forcing a total rewrite of employment contracts.
The SDI "No Cap" Reality Check
Let's talk about the State Disability Insurance rate because this is where the math gets painful for high earners. For 2026, the SDI withholding rate has ticked up to 1.3%. That sounds small. It isn’t.
You’ve probably heard that the wage cap is gone. It actually vanished back in 2024, but the 2026 rate hike makes that "no limit" policy even more aggressive. Previously, you stopped paying into SDI once you hit a certain threshold (around $153,000). Now? There is no ceiling. If an executive makes $500,000, they are paying 1.3% on every single cent.
Why the hike? Basically, the state expanded the benefits. Workers can now receive 70% to 90% of their regular income while on leave. Since the benefits are more generous, the fund needs more cash. For employers, this means your high-value talent is seeing a bigger chunk of their paycheck disappear, which often leads to "conversations" about salary adjustments to offset the loss.
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California Payroll Tax News: The 2026 Numbers You Need
Every December, the EDD drops the new rates. If you haven't updated your software yet, you’re already behind. Here is the breakdown of what the 2026 landscape actually looks like for your ledger.
- Unemployment Insurance (UI): We are stuck on Schedule F+. This is the highest possible rate schedule. It includes a 15% emergency surcharge. Your rate will likely fall between 1.5% and 6.2% depending on your experience rating.
- Taxable Wage Limit: This stays at $7,000. It’s arguably the only "low" number in California tax law, but don't get comfortable. There have been ongoing discussions in Sacramento about raising this for the first time in decades.
- Employment Training Tax (ETT): This is holding steady at 0.1% for employers with positive UI reserve account balances.
- State Disability Insurance (SDI): As mentioned, it’s 1.3% for 2026. No wage cap.
- Personal Income Tax (PIT): Method A and Method B tables have been refreshed. Don't use your 2025 tables. You’ll end up under-withholding and facing a mess during audit season.
The "Stay-or-Pay" Ban (AB 692)
This is the sleeper hit of the 2026 legislative season. AB 692 essentially bans the "stay-or-pay" provisions that many companies use to protect their training investments.
Think about it. You pay for an employee’s $10,000 specialized certification. You have a contract saying if they quit within a year, they owe you that money back. Starting January 1, 2026, those legacy clawback provisions are largely illegal in California.
The state views these as "debt traps" that function like non-competes. There are very narrow exceptions—like certain tuition reimbursements for transferable credentials—but they have to be in separate agreements and strictly prorated. If you try to take that money out of a final paycheck, you’re asking for a $5,000 penalty per employee. Honestly, you should just have your legal team look at any relocation or signing bonus language right now.
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Pay Transparency Gets Even Toothier
SB 464 and SB 642 have officially arrived. These laws are changing how you report pay data. You can't just lump everyone together anymore. Starting now, you have to keep demographic data totally separate from personnel records.
Also, the "pay scale" definition just got much broader. If you have 15 or more employees, you have to include a "good faith" estimate of compensation in your job postings. And no, you can't just put "depends on experience" or a range of $50,000 to $250,000. It has to be what you reasonably expect to pay.
Actionable Steps for 2026 Compliance
Audit your payroll settings immediately. Don't trust that your provider has the 1.3% SDI rate correctly applied to all wages. Check the logic. If there's a cap still sitting in your system, you’ll be on the hook for the difference later.
Update your "Exempt" salary thresholds. Since the state minimum wage is now $16.90, the minimum salary for an exempt employee has climbed to **$70,304 per year**. If you have managers sitting at $68,000, they are technically non-exempt as of January 1. That means you owe them overtime. Sort that out before the first pay run of the year.
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Rewrite your clawback agreements. Check your sign-on bonus and relocation contracts. If they were signed after January 1, 2026, and don't meet the new AB 692 requirements, they are likely void. You might want to switch to "earned" bonuses that pay out over time rather than "unearned" bonuses that you try to claw back later.
Review your Workplace Violence Prevention Plan. SB 553 wasn't a one-time thing. You are now in the "Year Two" cycle, which means you need to conduct your annual review and interactive training. Cal/OSHA is moving from "education mode" to "enforcement mode" this year.
Verify your UI Experience Rating. The EDD mailed out the DE 2088 notices in December. If your rate jumped significantly, you have a limited window to protest it. Sometimes the EDD attributes claims to your account that actually belong to another employer. It’s worth the 15 minutes to double-check the math.