As we kick off 2026, we’d like to give you a heads-up regarding changes to Federal Unemployment taxes (FUTA) for employees in California, the Virgin Islands, and New York.
Some states are subject to a “Credit Reduction,” which essentially means employers in those states pay a higher federal unemployment tax rate to cover outstanding federal loans.
What this means for you: If you have employees working in the following areas, please note the rate adjustments below:
California: The rate is increasing.
- 2025 Rate: 1.8%
- 2026 Rate: 2.1%
Virgin Islands: The rate is increasing.
- 2025 Rate: 5.1%
- 2026 Rate: 5.4%
New York: New York is no longer on the reduction list, so the rate remains at the standard low baseline.
- 2026 Rate: 0.6% (Unchanged)
For our PEO clients, we have updated our system to reflect these rates for the 2026 tax year.
For a deeper dive into these regulations, you can view the IRS FUTA page or the Department of Labor website.
Need help? Contact our experts!
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