States Subject to FUTA Credit Reduction For 2025
States Subject to FUTA Credit Reduction for 2025
Due to ongoing economic conditions, some states had to borrow money from the federal government in order to meet Unemployment Insurance benefit obligations. All states have been able to repay the loan with the exception of California. Because of this, there will be a reduction in the credit some employers receive toward their Federal Unemployment Tax Act (FUTA) taxes for the calendar year 2025. The increased revenue associated with this reduced credit will be used by the federal government to repay the loan. Under the Federal Unemployment Tax Act (FUTA), employers typically pay an annual FUTA tax rate of only 0.6% because the 6.0% tax rate is offset by a federal credit of 5.4%. However, by law, after a state has had an outstanding loan balance for two consecutive years they will face a reduction in the 5.4% credit if the loan is not paid by November 10 in the same year.
Under the Federal Unemployment Tax Act (FUTA), employers typically pay an annual FUTA tax rate of only 0.6% because the 6.0% tax rate is offset by a federal credit of 5.4%. However, by law, after a state has had an outstanding loan balance for two consecutive years they will face a reduction in the 5.4% credit if the loan is not paid by November 10 in the same year.
What does this mean?
If you have employees in California, Green Leaf Payroll Solutions will process a one-time adjustment run to charge your account for the FUTA Credit Reduction tax due. You will be notified of the date and amount Green Leaf will ACH your business account for the Taxes in early January.
To estimate the amount of tax you will owe, please login to the system, navigate to the Hamburger Menu > My Info > My Reports > My Saved Reports > then search under the "Saved as Name" tab for " CA FUTA Reduction Credit Report 2025*" > Click the play button to view the report.
Once on the report, choose the ellipses (three dots) then choose export.
Once exported to Excel, use the "PST Record Subject Wages (ER)" column as the base amount to multiply by the Credit Reduction Rate listed below.
For example, if the report lists CA at $7000, then your equation in Excel would be $7000 x .012 = $84 would be the amount for this particular employee. Then the total sum across the employees in the applicable states will be the amount Green Leaf will be pulling.
State Credit Reduction
California 1.2%
If you have any questions, please feel free to reach out.
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