California Employers Hit with FUTA Tax Credit Penalty
Published Date: 1/12/2026
Notice
Summary
If you’re an employer in California or the U.S. Virgin Islands, your FUTA tax credit will be smaller in 2025, meaning you’ll pay a bit more in federal unemployment taxes. California faces a 1.2% credit cut, and the U.S. Virgin Islands sees a 4.5% cut because they still owe money from past loans. Connecticut and New York cleared their debts early, so their employers get to keep full credits this year.
Analyzed Economic Effects
3 provisions identified: 1 benefits, 2 costs, 0 mixed.
U.S. Virgin Islands FUTA Credit Cut
If you are an employer in the U.S. Virgin Islands, your FUTA tax credit is reduced by 4.5 percentage points for calendar year 2025. The U.S. Virgin Islands had outstanding Title XII advances as of January 1, 2025 and a balance on November 10, 2025, so employers there face the larger credit reduction for 2025.
California FUTA Credit Cut
If you are an employer in California, your FUTA tax credit is reduced by 1.2 percentage points for calendar year 2025. That means you will pay a bit more in federal unemployment taxes for 2025 because California had outstanding Title XII advances as of January 1, 2025 and had a balance on November 10, 2025.
Connecticut and New York Keep Full FUTA Credit
If you are an employer in Connecticut or New York, you are not subject to a FUTA credit reduction for calendar year 2025 because each state repaid its outstanding Title XII advances before November 10, 2025. As a result, employers in those states keep the full FUTA credit for 2025.
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