Two states and one U.S. Territory have been assessed a Federal Unemployment Tax Act (FUTA) credit reduction for employers in 2024. This means that the usual credit against the full FUTA tax rate will be reduced, resulting in higher tax rates for employers who pay wages subject to unemployment insurance (UI).

Affected States

For the third year in a row, employers based in California and New York will face the impact of a FUTA credit reduction. For 2024, this will result in a 0.9% FUTA credit reduction on wages paid to employees for work in either state. This reduction will ultimately lead to employers paying an effective federal unemployment tax rate of 1.5%, or up to $105 per employee, when applied to the federal unemployment-taxable wage base of $7,000.

Employers in the US Virgin Islands will have to pay an effective federal unemployment tax rate of 4.8% on wages paid to employees for work in the territory. This is due to a general FUTA credit reduction of 4.2%. The reduction will be applied to the $7,000 wage base, meaning employers may have to pay up to $336 for each employee. This is the fourteenth consecutive year the US Virgin Islands has been subject to a FUTA credit reduction.

More about the FUTA Credit Reduction

If a state has an outstanding loan balance from the federal unemployment tax account on January 1 for two consecutive years, it will be subject to a FUTA credit reduction. To repay the loan, the federal government decreases the credit given to that state and raises the net FUTA tax rate for employers. This is done to discourage states from borrowing from the federal government and encourage them to responsibly manage their unemployment insurance programs.

For more information on the FUTA Credit Reduction, please see IRS.gov.