Planning your cash flow without this on your radar? It might throw a wrench in your year-end projections.
If you have employees in California, New York, Connecticut, or the U.S. Virgin Islands, you’ll want to keep reading—because a potential FUTA credit reduction could hit your payroll hard in 2025.
Here’s what’s happening, and why now is the time to get ahead of it.
• California employers could pay up to $343 more per employee in 2025 federal unemployment taxes.
• This is due to an expected FUTA credit reduction of 4.9%.
• It applies to the first $7,000 in wages per employee.
• States that don’t repay federal unemployment loans by November 10, 2025 face this penalty.
California (along with a few other states) borrowed from the federal government to cover unemployment benefits—and hasn’t paid it back yet. If the loan isn’t repaid by the deadline (spoiler: it probably won’t be), the FUTA credit will be reduced, triggering higher taxes for employers.
History tells us this isn’t just a maybe—it’s a pattern.
Let’s say you have 50 employees. That’s a potential $17,150 in unexpected taxes, due in one lump sum.
And that’s not including any last-minute scramble to adjust your year-end payroll processes or explain the spike in tax expenses to your leadership or finance team.
• If you operate in one of the impacted states, especially California:
• Update your 2025 cash flow projections to account for the potential increase.
• Talk to your payroll provider or accounting team now—not in Q4.
• Consider proactively setting aside funds to cushion the blow.
Pro Tip from Optima: Early prep = peace of mind. Waiting until November 10 to find out if you owe thousands? That’s a gamble we don’t recommend.
At Optima Office, we’re already helping clients account for this in their 2025 planning, because avoiding surprises is part of the service. If you'd like a team that sees around corners, let’s talk.