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California’s unpaid debts are weighing on jobs
California owes billions in unpaid unemployment loans, and the ripple effects are beginning to be felt. From higher taxes for employers to long‑term economic consequences, the state’s financial decisions are influencing businesses and workers.
But how deep does the impact really go, and what does it mean for job growth? Let’s take a closer look.
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How federal UI payroll tax rules work
Federal unemployment insurance (UI) is funded by employers through the Federal Unemployment Tax Act (FUTA), which typically imposes a 6 percent tax on the first $7,000 of wages. Employers typically receive a credit of 5.4 percent.
If a state’s UI trust fund owes federal Title XII advances for more than two years, the FUTA credit is reduced by 0.3 percent annually. As long as California’s UI fund remains indebted, employers in the state will face these reduced tax credits.
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Increased payroll taxes for California employers
Because California’s UI fund debt has persisted, employers in the state have faced higher federal UI taxes in recent years. For wages paid in 2022, California employers owed approximately $63 per employee in FUTA, including an additional $21 on top of the standard $42 baseline…