Last Updated on December 23, 2025 by The HD Post Staff

CALIFORNIA — California businesses are feeling the financial impact of the state’s ongoing failure to repay a $20 billion federal unemployment insurance loan, according to a KCRA report.

Each employer next year will pay an additional $42 per employee in payroll taxes because of the debt, regardless of company size or whether workers are part-time or full-time. 

In 2027, the number increases to $63 and increases another $21 per employee every year until the debt is paid.

California remains the only state in the nation that has not fully repaid the loan it took from the federal government during the COVID-19 pandemic to cover unemployment claims.

Under federal law, because the debt was not settled within the two-year window after the pandemic, the penalty shifted to employers through increased payroll taxes under the Federal Unemployment Tax Act (FUTA). 

“Potential penalties could be over $400 per employee”

While most states used federal stimulus funds to repay COVID-era debts, California directed the money toward infrastructure, homelessness and other priorities, KCRA reports.

Governor Gavin Newsom proposed billions for the loan last year, but lawmakers took no action and left the principal unpaid.

California Businesses Roundtable president Rob Lapsley said potential penalties that could be imposed by the federal government could exceed $400 per employee.

“To the governor’s credit, he hasn’t expanded unemployment insurance for what the Legislature wanted, which was for striking workers. That would’ve blown a much bigger deficit into the program,” Lapsley said. “But we’re still stuck with $21 billion.”

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