California & U.S. Virgin Islands Face 2025 FUTA Credit Reduction — What Employers Owe
California (1.2% credit reduction, $84 additional per employee) and USVI (4.5%, $315/employee) missed the November 10 repayment deadline. Additional FUTA tax is due with Form 940 by February 2, 2026.
- California employers face a 1.2% FUTA credit reduction — effective FUTA rate rises from 0.6% to 1.8% on first $7,000 of wages.
- USVI employers face a 4.5% credit reduction — effective rate 5.1%, or $315 additional per employee.
- Additional FUTA is due with Form 940 — use Schedule A to compute credit reduction by state.
- Deadline: February 2, 2026 (January 31 falls on Saturday). No separate deposit required — pay with Form 940.
- For a California employer with 500 employees: $42,000 in additional federal unemployment tax for 2025.
What Is a FUTA Credit Reduction?
Employers normally receive a 5.4% credit against the 6.0% FUTA tax rate, resulting in a net rate of 0.6% on the first $7,000 of each employee's wages. When a state borrows from the federal unemployment trust fund and fails to repay those loans within the required timeframe, the credit is reduced — and employers in that state owe additional FUTA tax for the year.
Affected Jurisdictions for 2025
| Jurisdiction | Credit Reduction | Base Net Rate | 2025 Effective Rate | Add'l Tax per Employee |
|---|---|---|---|---|
| California | 1.2% | 0.6% | 1.8% | $84.00 |
| U.S. Virgin Islands | 4.5% | 0.6% | 5.1% | $315.00 |
Additional Tax Per Employee
Due Date: February 2, 2026
The additional FUTA tax is reported on Schedule A (Form 940) and paid with the annual Form 940 filing. Because January 31, 2026 falls on a Saturday, the deadline is extended to February 2, 2026. No separate deposit is required — the credit reduction amount is computed on Schedule A and added to the total FUTA liability on Form 940.
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