# 2026-00342: California Employers Hit with FUTA Tax Credit Penalty 2026-00342, Notice of the Federal Unemployment Tax Act (FUTA) Credit Reductions Applicable for 2025, is a Federal Register notice from Labor Department, Employment and Training Administration published 2026-01-12, effective 2025-01-01 (as of 2026-06-08). - Canonical: https://policyrisk.com/federal-register/2026-00342 - As of: 2026-06-08 - Plain-text twin of the page above; the HTML and this file carry the same facts. ## Facts - Document number: 2026-00342 - Title: Notice of the Federal Unemployment Tax Act (FUTA) Credit Reductions Applicable for 2025 - Type: Notice - Agencies: Labor Department; Employment and Training Administration - Citation: 91 FR 1198 - Published: 2026-01-12 - Effective: 2025-01-01 - Comments close: not stated - Significant: no - Touches household money: no - Regulation identifier numbers: none - Last updated: 2026-06-08 ## In one line California Employers Hit with FUTA Tax Credit Penalty ## 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. ## Abstract Sections 3302(c)(2)(A) and 3302(d)(3) of FUTA provide that employers in a state that has outstanding advances under Title XII of the Social Security Act on January first of two or more consecutive years are subject to a reduction in credits otherwise available against the FUTA tax for the calendar year in which the most recent such January first occurs, if advances remain on November 10 of that year. Further, Section 3302(c)(2)(C) of FUTA provides for an additional credit reduction for a year if a state has outstanding advances on five or more consecutive January firsts and has a balance on November 10 for such years. Section 3302(c)(2)(C) provides for waiver of this additional credit reduction and substitution of the credit reduction provided in Section 3302(c)(2)(B) if a state meets certain conditions. As of January 1, 2025, California, Connecticut, New York, and the U.S. Virgin Islands had outstanding advances for two or more consecutive years and employers in these states were potentially subject to a FUTA credit reduction for 2025. Connecticut and New York each repaid their outstanding advances before November 10, 2025. As a result, employers in Connecticut and New York are not subject to a FUTA credit reduction for 2025. Neither California nor the U.S. Virgin Islands repaid all outstanding advances before November 10, 2025. California has had outstanding advances on January first for five consecutive years, and the U.S. Virgin Islands has had outstanding advances on January first for sixteen consecutive years. As such, employers in California and the U.S. Virgin Islands are subject to the basic credit reduction under Section 3302(c)(2)(A), FUTA, and were potentially liable for an additional reduction under Section 3302(c)(2)(C), FUTA. Both California and the U.S. Virgin Islands applied for a waiver of this additional credit reduction and ETA determined that each state legally satisfied the conditions for this waiver per Section 3302(f)(2)(B), FUTA. Therefore, there will be no additional add-on credit reduction in California or the U.S. Virgin Islands. Employers in California are subject to a FUTA credit reduction of 1.2 percent for 2025. Employers in the U.S. Virgin Islands are subject to a FUTA credit reduction of 4.5 percent for 2025. ## Effects PRIA read - California FUTA Credit Cut: cost, low. 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… - U.S. Virgin Islands FUTA Credit Cut: cost, medium. 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 reductio… - Connecticut and New York Keep Full FUTA Credit: benefit, low. 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. ## Related documents - [2026-18978](https://policyrisk.com/federal-register/2026-18978): Federal-State Unemployment Compensation (UC) Program; Data Availability, 2026-09-16 - [2026-16982](https://policyrisk.com/federal-register/2026-16982): Wagner-Peyser Act Employment Service Staffing, 2026-08-20 - [2026-10456](https://policyrisk.com/federal-register/2026-10456): Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2026, 2026-05-27 - [2026-18043](https://policyrisk.com/federal-register/2026-18043): Federal-State Unemployment Compensation Program: Notice of Federal Agency With Adequate Safeguards To Satisfy the Confidentiality Requireme…, 2026-09-03 - [2026-17834](https://policyrisk.com/federal-register/2026-17834): Agency Information Collection Activities; Comment Request; Job Corps Placement and Assistance Record, 2026-09-01 - [2026-17833](https://policyrisk.com/federal-register/2026-17833): Agency Information Collection Activities; Comment Request; Student Safety Assessment (SSA) of Job Corps Students, 2026-09-01 ## Sources - [2026-00342 on federalregister.gov](https://www.federalregister.gov/documents/2026/01/12/2026-00342/notice-of-the-federal-unemployment-tax-act-futa-credit-reductions-applicable-for-2025) - [2026-00342 as published (PDF)](https://www.govinfo.gov/content/pkg/FR-2026-01-12/pdf/2026-00342.pdf) ## Related - [Previous: 2026-00341, Submission for OMB Review; Comment Request; Reinstatement](https://policyrisk.com/federal-register/2026-00341) - [Next: 2026-00343, Petition for Modification of Application of Existing Mandatory Safety Standards](https://policyrisk.com/federal-register/2026-00343) - [All Federal Register documents](https://policyrisk.com/federal-register) Source: PRIA, https://policyrisk.com/federal-register/2026-00342 (as of 2026-06-08).