Key figures
California payables
2026, with sources
The ABC test
Since AB 5, California presumes anyone paid for work is an employee unless the hiring company proves all three parts of the ABC test: the worker is free from its control and direction, the work is outside the usual course of its business, and the worker is customarily engaged in an independently established business of the same kind. Part B is where startups fail: a freelance engineer writing your product’s code is doing work in the usual course of a software company.
Statutory exemptions exist for some professional services and business-to-business arrangements, each with its own conditions. Misclassification exposes the company to back UI, ETT, SDI and withholding through EDD, and to wage claims under the Labor Code.
Reporting and withholding
California adds two reports to the federal 1099: a new-contractor report to EDD that feeds child-support enforcement, and nonresident withholding run by the FTB.
- Form DE 542 to EDD within 20 days for contractors paid or contracted at $600 or more.
- Form 590 from each California payee, so no nonresident withholding is needed.
- Form 592 and 592-B when 7% is withheld from a nonresident.
- 1099s through the IRS Combined Federal/State Filing Program, or directly to the FTB when the state amounts differ.
Use tax on what you buy
When an out-of-state vendor doesn’t charge California tax on a taxable purchase, the buyer owes use tax. A business without a seller’s permit that makes more than $10,000 of such purchases in a year (2024–2028) must register with CDTFA as a qualified purchaser and file by April 15. Once SaaS becomes taxable on January 1, 2027, software subscriptions from vendors that don’t collect California tax will fall in this bucket.
Deadlines
- Within 20 days of paying $600 or signing a $600 contract, whichever is earlierReport an independent contractor paid, or contracted for, $600 or moreForm DE 542
- Set by the FTB in the Form 592 instructionsReport nonresident withholding and give each payee their statementForm 592 / 592-B
- Apr 15 for the prior yearUse tax on purchases where no California tax was chargedQualified purchaser use tax return
The federal baseline
This page covers what California adds. The federal rules underneath it apply here too.
Common questions
Do we report contractors to California?
Through EDD, separately from the 1099. Within 20 days of paying an individual contractor $600, or signing a contract for $600 or more, you file Form DE 542 with EDD. California’s threshold stayed at $600 even though the federal 1099-NEC threshold rises to $2,000 for 2026.
Do we withhold on an out-of-state contractor?
If they live outside California and do the work in California, California-source payments over $1,500 in a year require 7% withholding, reported on Form 592, unless they give you a Form 590 exemption certificate or the FTB approves a waiver. Work performed entirely outside California is not California-source.
Payables next door
- AZArizona payablesArizona collects 1099s that show Arizona withholding with the A1-R by Jan 31, offers a statutory contractor declaration, and charges use tax on untaxed SaaS.
- NVNevada payablesNo state 1099s and no contractor withholding. What reaches payables in Nevada is use tax on tangible goods bought without Nevada tax.
- OROregon payablesOregon has no sales or use tax, but every 1099 for an Oregon recipient is filed directly with DOR through iWire, and individual contractors are reported as new hires within 20 days.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
More of the California guide
- AccountingAccounting and state tax in CaliforniaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in CaliforniaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in CaliforniaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in CaliforniaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in CaliforniaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.