The U.S. Department of Labor (DOL) released its list of potential FUTA credit reduction states and territories for 2025, and they are California, Connecticut, New York, and the U.S. Virgin Islands. The determination will be made after November 10, 2025 [DOL, Potential 2025 Federal Unemployment Tax Act (FUTA) Credit Reductions, 1-10-25].
California and New York have a credit reduction of 0.9% for 2024. Both could face a potential credit reduction of 1.2% for 2025.
Connecticut was not subject to a credit reduction for 2024. However, Connecticut has resumed borrowing from the federal government and has an outstanding Federal Unemployment Account loan. Because it had an outstanding balance on at least 4 consecutive January 1, it is subject to a potential credit reduction of 1.2% for 2025.
The Virgin Islands began borrowing in August 2009, has a current outstanding balance, and was subject to a credit reduction of 4.2% for 2024. It could be subject to a potential credit reduction of 4.5% for 2025.
Additional Penalty
California, Connecticut, and New York are also potentially subject to the Benefit Cost Rate (BCR) add-on for 2025. The Virgin Islands does not face a BCR add-on for 2025. As of January 10, California faces an add-on of 3.7%, Connecticut faces an add-on of 0.8%, and New York faces an add-on of 1.1%. This means that the potential FUTA credit reduction each state faces for 2025 is 4.9% for California, 2% for Connecticut, and 2.3% for New York. The amount of the add-on may be recalculated based on certain factors. Also, these states can apply for a waiver of the add-on by July 1.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for PayrollOrg.
