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California DE4 Form: What You Should Know

On April 1, 2018, the Department modified the DE 4, 2020 employee withholding provisions to address additional requirements and to correct certain inconsistencies and deficiencies, including to better align the regulations with the requirements of the Internal Revenue Code (IRS). Effective May 1, 2018, changes were made to the employee withholding provisions as follows: The new regulations require all employees whose withholding is based on their wages to pay the self-employment tax, including penalties, on the employee's share of the self-employment tax instead of on the employee's share of wages. The new regulations also provide a method to make direct deposits of the self-employment tax into the government of the State or locality where the employee establishes their self-employment office, instead of a direct deposit method established under current law. The new regulations also provide that there may be no employee withholding requirements where the person has a valid certificate of authority to act as self-employed (see DE 38-4-101 through 38-4-201). Further, the Department has revised the instructions for issuing certificates to provide greater clarity. Employees may have an account at the state treasury and may deduct the self-employment tax from wages paid to the employee. All employees must have their wages deposited into the account. Employees must have an account at the State treasury for the period of 12 months. The 12-month period commences on the first day of the month following the quarter in which the employee's wages were withheld and each month following the last day of the 12-month period. Employees who have more than 12 months of wages withheld and remitted may elect to have their wages withheld only for 3 months, at the beginning and end of those months. The Department's current regulations provide an exemption from payment of the self-employment tax for employees who work at least 30 hours a week and who are not regularly employed at a self-employment office. The proposed regulations for employees under 38-4-101 through 38-4-206 would increase the amount of time to claim the three-month exemption to 30 hours a week from the current 30 hours. Employees who do not make a self-employment deduction may still have to withhold and remit self-employment tax in the manner provided in DE 4, 2020, the current regulations, and the Department's regulations to the State of Florida. For more information regarding DE 4, 2020 changes, see Appendix C.

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