Because California’s loan of over $18 billion from the federal government to cover California’s unemployment insurance claims during the COVID-19 pandemic has not been paid, employers will face a 0.3% credit rate reduction (a.k.a. rate increase) for 2025, which will be paid by employers in 2026. Similar increases were imposed for 2022 through 2024. This will bring the cumulative rate increase to 1.2%, which is the equivalent of an additional $84 per employee ($7,000 wage base × 1.2%). When combined with the standard 0.6% rate, this will be a total rate of 1.8%.
This means most employers will be paying $126 per employee next year for California employees with $7,000 or more in wages (less for those with wages under $7,000).
In addition, because the loan has been outstanding for over five years now, employers may face an additional 3.7% rate hike, referred to as a Benefit Cost Reduction (BCR) add-on. If imposed, this would amount to a total rate of 4.9%, or up to $238 per employee.
Governor Newsom has submitted a request to the U.S. Department of Labor to waive the BCR add-on; similar requests were submitted and approved in the past (2015–2017). The federal government has until November 10, 2025, to either approve or reject the waiver, which means that employers are currently in limbo as to how much they must set aside to pay for the tax next year.
We will send another Flash E-mail when a decision is made on California’s waiver request.
Sign up for Spidell’s 2025/2026 Federal and California Tax Update webinar and get details on OBBBA’s many tax provisions. Click here and register today.
