The U.S. Department of Labor (DOL) released its list of potential Federal Unemployment Tax Act (FUTA) credit reduction states and territories for 2026, and they are California and the U.S. Virgin Islands. The determination will be made after November 10, 2026 [DOL, Potential 2026 Federal Unemployment Tax Act (FUTA) Credit Reductions, 1-15-26].
California
California had a credit reduction of 1.2% for 2025 and faces a potential FUTA credit reduction of 1.5% for 2026. However, this percentage could increase to 5.3% because of the Benefit Cost Rate (BCR) add-on, which would be 3.8% for 2026. California can apply for a waiver of the BCR add-on by July 1, which would leave the rate at 1.5%.
Virgin Islands
The Virgin Islands began borrowing in August 2009, has a current outstanding balance, and was subject to a FUTA credit reduction of 4.5% for 2025. It could be subject to a potential FUTA credit reduction of 4.8% for 2026. The Virgin Islands does not face a BCR add-on for 2026.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for PayrollOrg.
