2026 Federal Unemployment Tax Hike Avoided

Connecticut employers will not face a federal unemployment tax increase in 2026.

The Lamont administration repaid its outstanding federal loan advances just before the Nov. 10, 2025, deadline, avoiding FUTA increases.

California, Connecticut, and New York were the only states—along with the U.S. Virgin Islands—with outstanding loan advances in 2025, potentially putting employers on the hook for a tax hike.

As of early November, Connecticut was still at risk of not paying back in full federal loans taken out during the pandemic to supplement unemployment insurance costs. 

New York also met its obligations, leaving employers in California and the Virgin Islands facing an increased FUTA rate.

FUTA Rates

The standard FUTA tax rate is 6% on the first $7,000 of wages subject to FUTA, with employers eligible for a credit of 5.4% when they file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, resulting in a net tax rate of 0.6%.

When states have outstanding loan balances for two consecutive years and do not repay the full balance by Nov. 10 of the second year, the FUTA credit rate for employers is reduced until the loan is repaid.

California employers will pay three times as much in federal unemployment taxes as employers in other states.

It’s important for employers to monitor the overall solvency and use of the state’s unemployment insurance trust fund.

Because FUTA is a flat tax paid by all employers, the overall tax burden will increase for all employers in California even if an employer laid off no employees.

Employers in the Virgin Islands will be required to pay more than eight times more than businesses in other states and jurisdictions.  

While Connecticut paid off outstanding balances by the November 2025 deadline, it’s important for employers to monitor the overall solvency and use of the state’s Unemployment Insurance Trust Fund, which is solely funded by private sector employers.

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For more information, contact CBIA’s Paul Amarone (860.244.1978).