According to the U.S. Department of Labor (DOL), California and the U.S. Virgin Islands could not pay back their federal loans by the November 10, 2025, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2025 [DOL, Final 2025 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-10-25].
For 2025, California is subject to a credit reduction of 1.2% and the Virgin Islands is subject to a credit reduction of 4.5%. California and the Virgin Islands were also subject to a credit reduction for 2024.
Earlier this year, Connecticut and New York were listed as potential FUTA credit reduction states, but the states paid off their outstanding loans by the November 10, 2025, deadline. Though both states appear on the final list, the reduction amount is listed as 0.0%.
Tax Due in 2026
The additional FUTA tax must be deposited by the due date of the 2025 federal Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due February 2, 2026 (because January 31, 2026, is a Saturday). The 2025 Schedule A (Form 940) will contain the official list of credit reduction states/territories, and the credit reduction total from Schedule A is reported on Form 940. Both IRS forms will be available in the PayrollOrg Resource Library when they are finalized.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for PayrollOrg.