At a glance

• The main takeaway: New York State’s 2025-2026 budget eliminates the state’s outstanding Federal Unemployment Tax Act (FUTA) loan to avoid another tax hike on employers.
• Impact on your business: New York State employers will no longer be required to pay the state’s Interest Surcharge Assessment (ISA) once the loan and interest are paid off, and other immediate negative tax impacts are avoided.
• Next steps: Businesses operating in New York, or employers of New York-based employees, should review their upcoming payroll and tax obligations and assess the impact of the changes.

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The Full Story on New York’s FUTA Loan:

In a major relief for employers across New York State, Governor Kathy Hochul signed the fiscal year 2025–2026 budget into law on May 9, 2025, which includes a sweeping provision to eliminate the state’s outstanding FUTA loan. The legislation, detailed in bill A3006-C, Part MM, allocates $8 billion from general funds to fully repay the loan that has burdened New York businesses since the early days of the COVID-19 pandemic.

As of May 8, 2025, New York’s balance on this loan stood at $5.5 billion. The state has also been facing annual interest payments on the debt, with the 2025 obligation—calculated at a 3.12% interest rate—due by September 30.

A Longstanding Burden From the Pandemic Lifts

New York, like many other states, began borrowing from the federal government in 2020 to cover a surge in unemployment benefit payments. Under federal law, any state carrying a loan into its second year faces a FUTA credit reduction, which starts at 0.3% and increases by 0.3% annually for each year the debt remains.

Without the reduction, employers are allowed a 5.4% credit against their 6.0% FUTA tax rate resulting in a 0.6% effective FUTA tax rate. Applied against a maximum wage base of $7,000 per employee, this results in a tax of $42 per employee annually. The credit reduction impacts and lowers that 5.4% credit, increasing per employee costs significantly.

Barring a repayment of the outstanding loan in 2025, this would be the fifth consecutive year New York carried a loan balance, triggering not only a 1.2% FUTA credit reduction but also an additional Benefit Cost Rate (BCR) assessment of 1.1% — unless the state qualified for a waiver or fully repaid the loan.

Without action, employers could have faced a FUTA tax hike of up to $203 per employee in 2025, based on a $7,000 taxable wage base and a combined 2.9% rate increase. This increase would have applied to all employers with New York-based employees.

The Bottom Line on FUTA: Relief for New York Employers

By moving to repay the loan before the federal deadline of November 10, 2025, New York ensures that neither the FUTA credit reduction nor the BCR will be imposed for 2025. This will significantly ease the federal tax burden on employers and help improve the state’s business climate.

Moreover, the repayment will also eliminate the state’s Interest Surcharge Assessment (ISA), an annual levy on employers to help cover the federal interest payments. For 2024, the ISA was set at 0.12%, translating to about $15 per employee. Employers typically receive their ISA bill in June, with payment due within 30 days. Once the loan and associated interest are paid off, the ISA will be discontinued.