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California businesses are now shouldering the state’s federal unemployment debt with higher payroll taxes

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Updated: 12:17 AM PST Dec 21, 2024

SACRAMENTO, Calif. —

Businesses across California are now paying more on their payroll taxes to the federal government because of spending decisions the state’s legislature and governor made within the last couple of years.

The state failed to repay on time its $20 billion loan from the federal government that helped with California’s unemployment costs during the pandemic. The state forced businesses to close during COVID-19, leaving many jobless and in need of unemployment pay. State officials have said California ended up paying more than $200 billion in benefits, more than $32 billion of which was the subject of fraud.

California is one of two states (the other New York), that did not pay back the loan with the stimulus money it had received from the federal government. California received $27 billion in stimulus, but state leaders opted to keep it and spend it on other items at a time when they boasted about the state’s nearly $100 billion budget surplus. In 2023, the state faced a budget deficit in the tens of billions of dollars and then was met with the same hurdle in 2024.

Since the state did not pay back the debt within two years, federal law requires the state’s employers to step in and pay up. As of now, each employer, regardless of the number of employees they have and whether they are part or full-time, will pay an extra $21 dollars per employee on their payroll taxes. In 2026, the extra amount will increase to $42, in 2027 to $63, and increase another $21 per employee every year until it’s paid off.

Employers across the state within the last several weeks have received notices from their payroll companies, alerting them of their new costs as a result of the state’s decisions. Some told KCRA 3 they were blindsided by the amount of money taken out of their bank accounts.