Federal Unemployment Tax Act

For Wages Employers Paid in 2023

California employers fund regular Unemployment Insurance (UI) benefits through contributions to the state’s UI Trust Fund on behalf of each employee. They also pay Federal Unemployment Tax Act (FUTA) taxes to the federal government to help pay for:

• Administration of the UI program
• UI loans to insolvent states
• Federal extension benefits

Tax Information

California has had an outstanding federal loan balance for two consecutive years. As a result, California employers will see an increase in their FUTA taxes in January 2024 for wages paid to their workers in 2023. California began borrowing from the federal government starting June 3, 2020 in order to maintain solvency of our UI fund due to the impact of the unprecedented COVID-19 crisis. Per the January 2024 UI Fund Forecast, California’s expected year-end loan balance is estimated to be $20.8 billion at the end of 2024.

Generally, federal law provides employers with a 5.4 percent FUTA tax credit toward the 6.0 percent regular tax when they file their federal Employer’s Annual Federal Unemployment (FUTA) Tax Return (Form 940). However, this credit will be reduced by 0.6 percent to a 4.8 percent credit for the 2023 tax year. For each employer in California, that results in an additional tax of $42 per employee, per year. Without any change to the state’s UI funding structure, FUTA costs are anticipated to increase resulting in a reduction of the FUTA credit by an additional 0.3 percent each year until the UI Trust Fund regains solvency. For more information, visit FUTA Credit Reduction on the IRS website.

FUTA Recertification

The IRS uses the FUTA recertification process to make sure the total taxable wages you claimed on the Employer’s Annual Federal Unemployment (FUTA) Tax Return (Form 940) or the federal Household Employment Taxes (Form 1040, Schedule H) were paid to the state. You must meet both the state and federal payroll tax requirements.

On an annual basis, the EDD and the IRS compare the amounts you reported on your IRS Form 940 to the Total Subject Wages (Line C) and UI Taxable Wages (Line D2) reported on your EDD Quarterly Contribution Return and Report of Wages (DE 9). If the amounts are not the same, you have an out-of-balance condition. If not corrected, you may receive an assessment from the IRS or the EDD.

An out-of-balance condition can happen when we have not been notified of a change in your organization or Federal Employer Identification Number (FEIN). You can update your FEIN and make changes to your account online using e-Services for Business.

To request a FUTA recertification online:

1. Go to Ask EDD.
2. Select the Payroll Tax category.
3. Select the FUTA Recertification sub-category.
4. Select the FUTA Recertification topic.
5. Select Continue and complete the necessary information.

If you have questions about your request, call our FUTA Recertification Unit at 1-916-654-8545.