Federal Unemployment Insurance Tax Act (FUTA) Credit Reduction States Announced

At-a-Glance

• The US Department of Labor (USDOL) has published the final FUTA credit reduction states for 2025. 
• California and the US Virgin Islands (USVI) are subject to a FUTA credit reduction for 2025. 

Earlier this year, the USDOL identified California, Connecticut, New York, and the Virgin Islands (USVI) as states/territories that could face a FUTA credit reduction for 2025.

Recently, however, USDOL updated that guidance, as Connecticut and New York avoided a credit reduction by repaying their outstanding advances before November 10, 2025. Since California and USVI failed to repay their federal loans by that same date, they’re subject to a FUTA credit reduction for the 2025 tax year:

• California: 1.2% credit reduction (i.e., annual unemployment taxes will increase by $84 per employee)
• USVI: 4.5% credit reduction (i.e., annual unemployment taxes will increase by $315 per employee)

Next Steps

Paylocity will apply this update to all applicable Forms 940 for the Form 940 annual filings. To view your estimated FUTA tax liability, run the FUTA Credit Reduction Report and refer to the FUTA Credit Reduction Report PEAK article for additional information.