On January 10, 2026, the US DOL posted its determination of the FUTA offset credit reductions for 2025. These are the rates that apply to 2025 that are due for payment on or before January 31, 2026. See 2026-00342.pdf
California and the Virgin Islands are the only states in which employers will be required to pay an increased FUTA tax rate for 2025 above the normal 0.6% on the $7,000 tax base. For employers in California, the FUTA offset credit reduction is reduced from the normal 5.4% to 4.2%, resulting in a FUTA tax of 1.8%. For the Virgin Islands, the FUTA offset credit will be reduced by 4.5%, resulting in a FUTA tax of 5.1%.
Employers in California will be required to pay three times as much in FUTA tax as employers in other states. Because the FUTA tax is a flat tax to be paid by all employers, the FUTA tax burden will increase for all employers in California.
Employers in the Virgin Islands will be required to pay more than eight times more in FUTA tax than employers in other states and jurisdictions.
Attention to state UI trust fund solvency is needed in California and the Virgin Islands in 2026 to avoid a continued increase in the FUTA tax rate for 2026.
UWC is consulting with business associations with options to address the insolvency.
