New York Employers Face Another Unemployment Tax Rate Increase

As we move into 2025, New York employers will once again experience an increase to their Federal Unemployment Tax Act (FUTA) tax rate due to the state’s ongoing federal loan balance from the pandemic era.

Why Is This Happening?

During the COVID-19 pandemic, New York, like many other states, borrowed funds from the federal government to cover the costs of unemployment benefits. While the state has made efforts to repay the loan, as of May 2024, New York’s outstanding loan balance stood at $5.7 billion.

When a state has an outstanding loan balance for two consecutive years, the FUTA credit rate for employers is reduced, resulting in an increased tax liability. This means that New York businesses will once again be subject to an Interest Assessment Surcharge (IAS), which is used to cover the interest on these federal loans.

What Does This Mean for Your Business?

In 2024, New York’s IAS was set at 0.12%, or $15 per employee, and was billed in June. As we head into 2025, New York businesses will see another reduction in the FUTA credit rate, which will increase the FUTA tax rate.

The standard FUTA tax rate is 6%, but most businesses typically receive a 5.4% credit for a net FUTA rate of 0.6%. However, the credit is reduced when the state has an outstanding loan balance. For New York, this reduction results in an effective credit reduction from the outstanding advance of 0.9%.

The increased FUTA tax will impact the amount New York employers owe for federal unemployment taxes in 2025, and it will likely result in higher payroll tax costs.

What Action Should You Take?

Monitor payroll communications: New York’s Department of Labor issued the IAS assessment for 2024 with the second-quarter payroll filings, but the state has not yet announced the exact timing for the 2025 IAS assessment. It is therefore important to stay tuned for additional instructions from the state.

Review your payroll taxes: If a business is subject to FUTA tax, they should expect to see the increase reflected in their 2025 payroll filings. It is important to budget for this increase and prepare for any related tax payments.

We are closely monitoring these changes and will continue to provide updates as new information becomes available. If you have any questions or need more information, please contact Alan Goldenberg, Principal and Leader of the State and Local Taxation (SALT) and Tax Controversy groups, or your Anchin Relationship Partner.