California Faces FUTA Credit Reduction for 2026

According to the U.S. Department of Labor (DOL), California could not pay back federal loans by the November 10, 2026, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2026 [DOL, Final 2026 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-10-26].

For 2026, California is subject to a FUTA credit reduction of 1.5%. California was also subject to a FUTA credit reduction for 2025.

Earlier this year, the Virgin Islands was listed as a potential FUTA credit reduction state/territory, but it paid off outstanding loans by the November 10, 2026, deadline. The Virgin Islands appears on the final list of FUTA credit reduction states with the reduction amount listed as 0.0%.

Tax Due in 2027

The additional FUTA tax must be deposited by the due date of the 2026 federal Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due February 1, 2027 (because January 31, 2027, is a Sunday). The 2026 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.

Interested in more state and local payroll coverage? PayrollOrg’s PayState Update eNewsletter is perfect for you. 

Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for the PayrollOrg.