California has four state payroll taxes: Employer Contributions, Most employers are tax-rated employers and pay UI taxes based on their UI rate. Wages paid to California residents for services performed both within and outside the state are subject to state income tax withholding.The issue confronting nonresidents working temporarily in California is whether they will be taxed only on their Californiasource income or become a resident. Once you bring on employees, you must pay California unemployment insurance taxes. Generally, if you work in California, whether you're a resident or not, you have to pay income taxes on the wages you earn for those services. According to California's last payment legislation, the employee's final check must contain all unpaid salaries and business expenses. Household employers must comply with tax, wage, and labor laws affecting nannies, in-home senior caregivers, and other household employees. How is income taxed in California? California also imposes income tax on S corporations, being one of the very few states that does this.