If the total number of allowance in CA form DE 4 is 0 but also write Exempt in Item 3. What does that mean? Do we need to withhold the CA income tax or it is exempt?

Hello, sam i am 101

The DE 4 is used to compute the amount of taxes to be withheld from your wages, by your employer, to accurately reflect your state tax withholding obligation.

You may claim exempt from withholding California income tax if you meet both of the following conditions for exemption: 

1. You did not owe any federal/state income tax last year.  
2. You do not expect to owe any federal/state income tax this year. The exemption is good for one year.  

To help you understand about withholding, go through the IRS 2022 Publication 15. 

If you have further questions or concerns, please feel free to reach back out. Have a great weekend ahead!

Thanks for your reply and I appreciate that. 

So if employee has written "Exempt" on the CA DE 4 form then employer is not deducting any payroll tax from this employee, is this correct assumption? thanks 

Thanks for getting back to this thread, @sam i am 101. I'm glad to share information about the deduction of payroll tax when an employee is marked as exempt. 

In QuickBooks Online (QBO), once an employee meets the required criteria to be exempt on their Federal Form W-4 or state form, any Federal or State Withholding taxes won't be deducted from their paychecks. You'll know more details about this by browsing through this article: Exempt your employee from Federal or State Withholding.

Once everything is fine, I've attached here this helpful resource to guide you in filing your state and federal payroll taxes online: Pay and file payroll taxes and forms in Online Payroll.

Let me know if you have additional follow-ups about the taxes for exempted employees. I'm always around the corner to chime in and provide further details. Have a good day ahead.