CA is a “credit reduction state” which means that employers in CA will have to pay more in Federal Unemployment Tax to the federal government for employees who they employed in 2023.
Due to outstanding federal unemployment loans, CA and NY are subject to FUTA Credit Reduction for 2023. This means New York and California businesses will be assessed additional FUTA taxes on the Form 940 payment and filing for 2023.
What is a credit reduction state?
Some states take loans from the Federal Unemployment Trust Fund if they lack the funds to pay unemployment insurance benefits for residents of their states. If a state has outstanding loan balances for two consecutive years, the FUTA credit rate for employers in that state will be reduced until the loan is repaid. This results in employers owing additional unemployment tax.
You can get more information about the increased taxes and determine the rate increase for your state in intuits FUTA help article.
To estimate the additional taxes owed, calculate the total 2023 wages paid for each employee in a credit reduction state, up to the maximum of $7,000. Multiply this by the percentage .6% for CA & NY.