Because California borrowed close to $18 billion in 2020 from the federal government to pay unemployment benefits during the COVID-19 pandemic and has yet to pay it off, employers face an additional 0.3% credit rate reduction (a.k.a. rate increase) for 2025, which will be paid by employers in 2026. This means for the 2025 tax year, paid in 2026, most employers will pay a FUTA rate of 1.8% per employee up to the $7,000 wage base.
This results in $126 maximum per employee, which is $84 more than they would pay without the FUTA credit reduction.
The good news, however, is that the potential 3.7% additional rate hike that was under consideration because California’s loan has been outstanding for more than five years will not go into effect. The federal government approved California’s waiver request on November 10, 2025, meaning the FUTA rate will remain at 1.8% for 2025.
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