As of November 6, 2025, the outstanding loan by California stood at $20,929,482,418.05 – Yes that is nearly $21 Billion with apparently no plan in California to pay off the balance. The result of years of unemployment trust fund insolvency in California is the continued annual increase in the Federal Unemployment Tax imposed under federal law to force repayment of the outstanding loan. See SocialSecurityTitleXII_Advances_20251106.pdf
The FUTA tax rate for employers with employees in California in 2025 (due by January 31, 2026) will increase by an additional approximately $21 per employee to $126 per employee. This is three times higher than any other state in the country (excluding the Virgin Islands). The increase is the result of the reduction in the FUTA tax offset credit that is provided under federal law for states that comply with federal requirements. The full offset credit reduction is normally 5.4 to reduce the 6.0 FUTA rate down to 0.6 on the $7,000 tax base. Because California has failed to repay the outstanding loan for many years, the FUTA offset credit for employers with employees in California has been reduced by 1.2 and now stands at only 4.2 resulting in a net FUTA tax of 1.8% on the $7,000 tax base. See the US DOL posting at final_credit_states_2025.xlsx
Employers in California were at risk of an even larger offset credit reduction under federal law that would have triggered a Benefit Cost Rate (BCR) additional FUTA offset credit reduction.
California requested a waiver of the BCR additional offset credit reduction for 2025, and thankfully the waiver was granted. However, the risk of a BCR additional offset credit reduction continues for 2026 and as long as there continues to be consecutive years of outstanding federal loan balances on loans taken by California. Federal law also requires as a condition of qualifying for a waiver that the state take no action legislatively or administratively to negatively impact the solvency of the state UI trust fund for the federal fiscal year. If California were to take action to increase benefits or reduce state unemployment taxes it may not qualify for a waiver.
The FUTA tax is a flat tax that imposes the tax on all employers with employees in California. Employers that have laid off none of their employees must still pay the increased flat tax. The state UI tax is required to be experience rated to reduce state UI taxes for employers with positive experience rates.
If there is no effort to improve the solvency of the California UI Trust fund and the outstanding federal loan balance is not eliminated as of January 1st of a future year the net FUTA tax will continue to increase up to 6.0 on the $7,000 tax base – Ten Times more than any other state.
Action is needed to address the insolvency of the California UI Trust fund to avoid the continued increase in the FUTA tax.
UWC has worked with many states to develop legislative packages to address insolvency through gradual increases in the experience rated state UI tax and benefit integrity measures to avoid the imposition of the larger flat FUTA tax increases. We plan to work with employer representatives in California to address this issue.
