CA Plumbing PrepC-36 License Exam Prep
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Law & Business · Module 2

Tax Responsibilities for California Plumbing Contractors

Lesson 4 of 8~20 minFree previewCurrent as of September 2026Leer en español

A plumbing contractor deals with four tax agencies: the IRS, the California Franchise Tax Board, the Employment Development Department and the California Department of Tax and Fee Administration. This lesson covers estimated income tax, how sales and use tax really works for construction contractors (you are usually the consumer of the materials you install, but the retailer of fixtures), federal and California payroll taxes, the employee versus independent contractor tests, and how long to keep tax records.

Key Takeaways

  • Under CDTFA Regulation 1521 a construction contractor is the consumer of materials it installs (pipe, valves, fittings): it pays tax when it buys them and does not bill the customer sales tax on them.
  • The same regulation makes the contractor the retailer of fixtures it furnishes and installs, such as plumbing fixtures, so tax applies to the fixture's stated sale price or, if none is stated, to its cost.
  • Use tax applies when you buy taxable items for use in California without paying California tax, for example from an out-of-state seller.
  • Employers withhold 6.2 percent social security and 1.45 percent Medicare from wages and pay a matching share; FUTA is employer-only (IRS).
  • In California, UI and ETT are paid by the employer on the first $7,000 of each employee's wages; SDI is withheld from the employee. EDD sets the rates each year.
  • Register with EDD within 15 days after paying more than $100 in wages in a calendar quarter, and report new hires within 20 days of their start date.
  • A worker is presumed an employee unless the ABC test (Labor Code 2775) or, for a written subcontract with a licensed subcontractor, the Labor Code 2781 criteria are met.
  • Federal estimated tax is due April 15, June 15, September 15 and January 15; California uses the same dates but splits payments 30, 40, 0 and 30 percent.

Why This Matters

CSLB's Law and Business study guide lists taxes under Business Finances and payroll under Employment Requirements, and it names IRS Publication 15 (the Employer's Tax Guide) and EDD's California Employer's Guide (DE 44) as references. One of CSLB's own sample questions asks what decides how often payroll deposits go to the IRS. The answer is the amount of your payroll tax liability.

Tax mistakes are expensive because they compound: penalties and interest pile onto the tax itself. Here is what each agency expects from a plumbing contractor.

Income Tax and Estimated Payments

How the business is organized decides who pays income tax. Sole proprietors, partners and S corporation shareholders report business income on their own returns; a C corporation pays its own tax (see the Business Organization Types lesson).

Federal (IRS):

  • Tax is pay as you go. Individuals, including sole proprietors, partners and S corporation shareholders, generally must make estimated payments if they expect to owe $1,000 or more when they file. Corporations generally must if they expect to owe $500 or more.
  • Payments are due April 15, June 15, September 15 and January 15 of the following year. A due date on a weekend or legal holiday moves to the next business day.
  • To avoid the underpayment penalty you generally must pay the smaller of 90 percent of this year's tax or 100 percent of last year's tax. If last year's adjusted gross income was over $150,000 ($75,000 married filing separately), the prior-year figure becomes 110 percent.
  • Self-employment tax is 15.3 percent (12.4 percent social security and 2.9 percent Medicare) on net earnings from self-employment, reported on Schedule SE once those earnings are $400 or more. You can deduct the employer-equivalent half in figuring adjusted gross income.

California (FTB):

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