How often a contractor deposits federal payroll taxes depends on how much tax it reported in a lookback period, not on how many people it employs or how often it pays them. If the lookback total was $50,000 or less, it deposits monthly. If it was more, it deposits semiweekly (IRS Publication 15). On the state side, the employer pays Unemployment Insurance (UI) and Employment Training Tax (ETT), and withholds State Disability Insurance (SDI) and Personal Income Tax (PIT) from wages (EDD DE 44).
Payroll is one of four subtopics under Employment Requirements, which CSLB lists at about 20% of the Law and Business exam (CSLB study guide). CSLB calls these percentages approximate and does not publish how many questions come from each subtopic. Its resource list names the California Employer's Guide (DE 44) and IRS Publication 15 (Circular E), the two main sources for this page.
The CSLB sample question
The first sample question in CSLB's own study guide is about payroll: "What determines how often an employer's payroll deposits are made to the IRS?" The marked answer is "The amount of payroll liability." The wrong choices are the number of employees, how long the company has been in business, and the ratio of salaried to hourly workers (CSLB study guide).
Publication 15 agrees: the deposit schedule "isn't determined by how often you pay your employees or make deposits" (IRS Pub. 15, section 11).
What an employer withholds and what it pays
Most employers must withhold, deposit, report and pay federal income tax, social security tax and Medicare tax, and must pay FUTA tax. FUTA is the one they do not withhold (IRS Pub. 15).
Federal taxes (2026 figures from Publication 15)
| Tax | Who pays | 2026 rate and limit |
|---|---|---|
| Federal income tax | Employee (withheld) | Based on the employee's Form W-4 |
| Social security | Employee and employer | 6.2% each (12.4% total) on wages up to $184,500 |
| Medicare | Employee and employer | 1.45% each (2.9% total), no wage limit |
| Additional Medicare Tax | Employee only (withheld) | 0.9% on wages over $200,000 in a calendar year; no employer share |
| FUTA (federal unemployment) | Employer only | 6.0% on the first $7,000 of each employee's wages |
Sources: IRS Pub. 15, sections 9 and 14.
The FUTA rate drops to 0.6% after credit if the employer is entitled to the maximum 5.4% credit for state unemployment tax. The full credit requires paying state unemployment tax in full and on time, and it is not available in full in a "credit reduction state" (IRS Pub. 15, section 14).
California taxes (2026 figures from the DE 44)
| Tax | Who pays | 2026 rate and limit |
|---|---|---|
| Unemployment Insurance (UI) | Employer | First $7,000 of each employee's wages. New employers pay 3.4% for two to three years; rates can range from 1.5% to 6.2% |
| Employment Training Tax (ETT) | Employer | 0.1% of the first $7,000 (at most $7 per employee per year) |
| State Disability Insurance (SDI) | Employee (withheld) | 1.3% of all subject wages; no wage limit since January 1, 2024 |
| California Personal Income Tax (PIT) | Employee (withheld) | Based on the employee's DE 4; no maximum |
Source: EDD DE 44 (2026), inside front cover and State Payroll Taxes.
Exam tip: if a question asks which California payroll tax comes out of the worker's pay, the answer is SDI (or PIT), never UI or ETT.
Federal deposit schedule: monthly or semiweekly
Step 1: find the lookback period
For a Form 941 filer, the lookback period for calendar year 2026 is the four quarters from July 1, 2024, through June 30, 2025. Add the taxes reported on Form 941, line 12, for those quarters (IRS Pub. 15, section 11, Table 1).
Step 2: apply the $50,000 line
| Lookback total | Schedule | When the deposit is due |
|---|---|---|
| $50,000 or less | Monthly | By the 15th day of the following month |
| More than $50,000 | Semiweekly | Wages paid Wednesday, Thursday or Friday: by the following Wednesday. Wages paid Saturday through Tuesday: by the following Friday |
Source: IRS Pub. 15, section 11.
A Form 941 filer that is new in business has a lookback liability of zero, so it is a monthly schedule depositor for its first calendar year (IRS Pub. 15, section 11).
Step 3: watch the $100,000 next-day rule
If taxes reach $100,000 or more on any day during a deposit period, the employer must deposit by the next business day, whether it is a monthly or a semiweekly depositor. A monthly depositor that hits $100,000 becomes a semiweekly depositor the next day. It stays semiweekly for the rest of that year and all of the next year (IRS Pub. 15, section 11).
Other federal rules worth knowing
- Small amounts. If total tax for the current quarter or the prior quarter is less than $2,500, and there was no $100,000 next-day obligation that quarter, the employer may pay with a timely Form 941 instead of depositing (IRS Pub. 15, section 11).
- Electronic only. All federal tax deposits must be made by electronic funds transfer, for example through EFTPS (IRS Pub. 15).
- Form 941 due date. Form 941 is due by the last day of the month after the quarter ends. If all deposits were made on time and in full, it may be filed by the 10th day of the second month after the quarter ends (IRS Pub. 15, section 12).
- By January 31. Give each employee a Form W-2, file Copy A of Forms W-2 with the Social Security Administration, and file Form 940 for FUTA (IRS Pub. 15, Calendar).
- Trust fund recovery penalty. Withheld income, social security and Medicare taxes are "trust fund taxes." If they are not withheld or not paid over, the penalty is 100% of the unpaid trust fund tax. If these taxes can't be collected from the business right away, the IRS may charge the penalty to any "responsible person" who acted willfully. That can include a corporate officer, a partner, or someone who signs checks for the business or otherwise has authority over how its money is spent (IRS Pub. 15, section 11).
California EDD: registration, reports and deposits
The DE 44 lists these state deadlines (EDD DE 44 (2026), p. 5):
| Form | What it is | Deadline |
|---|---|---|
| DE 1 | Employer account registration | Within 15 calendar days after paying more than $100 in wages in any calendar quarter |
| DE 34 | Report of New Employee(s) | Within 20 calendar days of a new or rehired employee's start-of-work date |
| DE 542 | Report of Independent Contractor(s) | Within 20 calendar days of paying an independent contractor $600 or more, or signing a contract for $600 or more, whichever is earlier |
| DE 9 / DE 9C | Quarterly contribution return and report of wages | 2026 quarters are delinquent if not filed by April 30, July 31 and November 2, 2026, and February 1, 2027 |
All employers must file employment tax returns and wage reports, and make payroll tax deposits, electronically with EDD (EDD DE 44).
California PIT and SDI deposits follow the employer's federal deposit schedule and the amount of PIT withheld. For example, a monthly federal depositor that has withheld $350 or more of PIT deposits by the 15th of the following month. Under $350, it deposits quarterly (EDD DE 44 (2026), p. 5).
Employee or independent contractor: the ABC test
Under Labor Code section 2775, a person paid for labor or services is an employee unless the hiring entity proves all three of these:
- A. The person is free from the hiring entity's control and direction in doing the work, both under the contract and in fact.
- B. The work is outside the usual course of the hiring entity's business.
- C. The person is customarily engaged in an independently established trade, occupation or business of the same nature as the work.
The burden is on the hiring business, and one or two conditions are not enough.
The construction subcontractor exception
Labor Code section 2781 takes some construction subcontracts out of the ABC test. When the contractor shows that all of the listed criteria are met, status is judged under section 2750.5 and the Borello test instead. Among the criteria: a written subcontract, a CSLB license covering the work, a separate business location, authority to hire and fire, and financial responsibility shown by insurance, bonds, indemnity or warranties.
Labor Code section 2750.5 adds a rebuttable presumption that a worker doing work that needs a contractor's license is an employee. A person doing licensed work must hold a valid contractor's license as a condition of having independent contractor status. So an unlicensed "sub" doing work that needs a license cannot qualify as an independent contractor.
The DE 44 warns that California gives no relief under the federal Safe Harbor provisions, and misclassifying employees can mean back taxes, penalties and interest (EDD DE 44 (2026), p. 7).
How long to keep payroll records
Different rules set different minimums. Keep records long enough to meet the longest rule that applies to you.
| Rule | Minimum | Source |
|---|---|---|
| Federal employment tax records | At least 4 years | IRS Pub. 15 |
| EDD payroll records | At least 4 years (8 years for records of payments to service providers if you believe you are not a subject employer) | EDD DE 44 |
| Payroll records of daily hours and wages | Not less than 3 years | Lab. Code §1174(d) |
| Copies of itemized wage statements | At least 3 years | Lab. Code §226(a) |
Dollar amounts and rates on this page are the 2026 figures from the 2026 Publication 15 and the DE 44. They change each year. CSLB does not say which year's figures its exam questions use.