Every California employer pays two unemployment taxes on the same first $7,000 of each employee's wages: the federal FUTA tax, filed through Form 940, and the state SUTA (UI) tax, managed through the EDD. Net FUTA typically runs about $42 per employee, while SUTA ranges within a moderate rate band depending on your assigned rate.
TL;DR:
- Employers in California pay both federal FUTA and state SUTA taxes on the first $7,000 of each employee's wages, with combined costs around $280 per employee if no credit reductions apply.
- FUTA's net rate can increase beyond 0.6% if the state has an outstanding federal loan, which has affected California since June 2020, raising the per-employee liability.
- California’s SUTA rate varies from 1.5% to 6.2%, starting at 3.4% for new employers, and heavily depends on experience ratings related to unemployment benefit claims.
- Accurate weekly tracking of the wage base and timely deposits are vital, as late filings and wage misallocations are common processing errors that lead to higher costs.
- Employers should review rate notices annually and implement payroll controls, including calendar reminders for quarterly filings, to prevent avoidable increases in unemployment tax liabilities.
Table of Contents
- FUTA vs. SUTA at a glance
- How does the FUTA tax actually work?
- Understanding California's SUTA rate and Schedule F+
- Running the numbers: two combined FUTA and SUTA scenarios
- Filing deadlines and deposits you cannot miss
- Payroll controls that protect your FUTA credit
- What we see go wrong most often
- How Glendale Payroll keeps your SUTA and FUTA filings on track
- FAQ
- Sources
FUTA vs. SUTA at a glance
Before diving into the mechanics, here is how the two taxes stack up side by side. Both apply to employers only, both use the same wage base, and both require separate filings with different agencies.
- FUTA is a federal tax reported on Form 940; it funds unemployment administration and extended benefits nationwide.
- SUTA (UI) is California's state unemployment insurance tax, administered by the EDD and reported quarterly.
- Both taxes apply only to the first $7,000 paid to each employee in a calendar year.
- The standard FUTA credit of 5.4% brings the statutory 6.0% rate down to a net 0.6%, or about $42 per employee.
- California's SUTA rate falls under Schedule F+, ranging from 1.5% to 6.2%, with new employers starting at 3.4%.
- Check EDD rate notices and IRS credit reduction announcements each fall, since both can change your liability before year end.
How does the FUTA tax actually work?
FUTA starts with a statutory rate of 6.0% on the first $7,000 of each employee's wages for 2026. Most employers never pay that full rate because they qualify for a credit of up to 5.4% for paying state unemployment taxes on time, which brings the effective rate down to 0.6%, according to IRS guidance on FUTA.
That credit is not automatic in every state. When a state borrows from the federal government to cover UI benefit payments and does not repay the loan, the Department of Labor and IRS can reduce that state's FUTA credit. California has carried an outstanding federal loan balance in recent years tied to borrowing that began on June 3, 2020, and the EDD's FUTA page documents how that balance has triggered credit reductions, raising the net FUTA cost per employee.
Employers report FUTA annually on Form 940. If you paid wages in a credit reduction state like California during a reduction year, you also complete Schedule A to calculate the added liability. Despite the annual filing, FUTA deposits are typically due quarterly once your cumulative liability exceeds $500. One point worth repeating: FUTA is entirely employer-funded. You never withhold it from employee paychecks, unlike federal income tax or Social Security.
Understanding California's SUTA rate and Schedule F+
California's UI tax applies to the same $7,000 wage base as FUTA, but the rate structure works differently. The state sets contribution rates under Schedule F+, which ranges from 1.5% to 6.2% depending on an employer's experience rating, as published in EDD's contribution rate guidance.
New employers in California generally start at a flat 3.4% rate regardless of industry, giving a predictable baseline before your experience rating kicks in. After a few years of reporting, your rate shifts based on benefit charges filed against your account: employers with fewer former employees drawing unemployment benefits tend to drift toward the lower end of Schedule F+, while those with frequent claims move toward the 6.2% ceiling.
The math at each end of that range looks like this:
- At the new-employer rate of 3.4%, SUTA costs $238 per employee ($7,000 × 3.4%).
- At the maximum rate of 6.2%, SUTA costs $434 per employee ($7,000 × 6.2%).
That is nearly double the liability between a brand-new employer and one with a poor claims history, which makes experience rating one of the more consequential numbers on your payroll ledger. The DE 3395 rate and wage limit pamphlet lists the full Schedule F+ table along with the current wage base each year.
EDD mails your official rate notice, the DE 2088, in December for the coming calendar year. That notice confirms your assigned percentage, so flag it for review as soon as it arrives rather than assuming last year's rate still applies. Our 2026 California payroll tax updates page tracks these annual rate shifts for employers who want a standing reference.
Running the numbers: two combined FUTA and SUTA scenarios
Seeing both taxes calculated together makes the interaction clearer than reading the rates in isolation. Here are two common situations California employers face in 2026.
- New employer, no credit reduction: A new business pays the 3.4% new-employer SUTA rate, costing $238 per employee. FUTA applies at the standard net rate of 0.6%, costing $42 per employee. Combined employer-paid unemployment tax is roughly $280 per employee.
- Established employer, 6.2% SUTA, with a FUTA credit reduction: If California's outstanding loan balance triggers a credit reduction similar to the 1.2% reduction that added $84 per employee in 2025, FUTA liability rises accordingly, as the EDD's FUTA history page explains. Combined with the maximum SUTA rate of $434, total employer-paid unemployment tax climbs well above the no-reduction scenario.
Employers who pay wages to the same worker in more than one state need Schedule A of Form 940 to allocate FUTA wages correctly, since the IRS Schedule A instructions require separate reporting per state when credit reductions apply. Whichever scenario fits your business, track the $7,000 wage base separately for each employee in each state. Mixing up cumulative totals across states is one of the most common sources of FUTA miscalculation.
Filing deadlines and deposits you cannot miss
California requires two quarterly reports: the DE 9 (Quarterly Contribution Return and Report of Wages) and the DE 9C (the detailed wage listing), plus DE 88 coupons for depositing the actual tax payments, as outlined in EDD's resources for new employers. For 2026, the standard quarterly due dates are April 30, July 31, November 2, and February 1, shifting to the next business day when a deadline lands on a weekend or holiday.
Miss that window and part of your credit can be lost even if you file Form 940 on time.
Late California filings carry penalties and interest, and a pattern of late SUTA deposits is exactly what can shrink your FUTA credit the following year. Our payroll tax deposit schedule guide lays out a working calendar for staying ahead of both agencies.
Payroll controls that protect your FUTA credit
Most lost credits and rate surprises trace back to a handful of preventable gaps, not complicated tax law. A short list of controls covers most of the risk.
- Track the $7,000 wage base separately for each employee and each state inside your payroll software, especially if you have multi-state workers.
- Set state UI deposits to a fixed calendar date well ahead of the February 1 cutoff rather than waiting until the deadline.
- Respond to every EDD separation and benefit claim notice promptly. Unanswered notices often result in charges against your experience rating that push your rate toward 6.2%.
- Schedule a payroll audit at least once a year and keep your EDD e-Services account active so rate notices and claims arrive without delay.
Pro Tip: Set a recurring calendar reminder for your DE 9/DE 9C filings a week before each quarterly due date so corrections can be made before, not after, submission.
Our EDD audit preparation checklist walks through the documentation EDD typically requests if your account is flagged for review.
What we see go wrong most often
Across the payroll files we review, late state unemployment deposits and incorrect multi-state wage allocation show up again and again as the two issues driving unexpected FUTA costs. Both are process failures, not calculation errors, which is exactly why they are preventable with the right calendar and account setup.
A dedicated payroll professional reviewing your account monthly catches a missed deposit date or a misrouted wage report before it becomes a rate problem. If you want a second set of eyes on your current setup, our free payroll audit is a reasonable place to start.
— Glendale Payroll Staff
How Glendale Payroll keeps your SUTA and FUTA filings on track
We built our payroll service around the specific compliance gaps that cost California employers money: missed deposit windows, mismatched wage bases, and rate notices that go unread. 
Our team handles the pieces that most often slip through the cracks:
- Payroll Processing and Direct Deposit so wages and withholdings post correctly every cycle.
- Tax Filing Services covering DE 9, DE 9C, DE 88, and Form 940 on the calendar EDD and the IRS actually use.
- EDD Account Setup for new employers who need their state UI account established correctly from day one.
- New Hire Reporting and W-2 Preparation so year-end filings match what was reported quarterly.
Every new client starts with a free payroll audit that identifies where wage tracking, deposit timing, or rate assignments are putting your FUTA credit or SUTA rate at risk. From there, service runs on a flat monthly plan plus a per-employee fee and a one-time setup charge, rather than a transactional, call-center model. If you work in Glendale, Burbank, Pasadena, or anywhere in Greater Los Angeles, our services page outlines everything included, and you can request your free audit directly from there.
FAQ
What is the SUTA tax in California?
SUTA, called UI (Unemployment Insurance) in California, is a state payroll tax that employers pay on the first $7,000 of each employee's wages each year. The EDD assigns each employer a rate under Schedule F+, ranging from 1.5% to 6.2%, with new employers typically starting at 3.4%.
Who has to pay FUTA and SUTA?
Employers pay both taxes, not employees. FUTA is a federal tax filed on Form 940, while SUTA is California's state UI tax reported quarterly to the EDD; neither is withheld from a worker's paycheck.
What is the California SUTA rate for 2026?
California's 2026 SUTA rates fall under Schedule F+, ranging from 1.5% to 6.2%, with new employers assigned a default rate of 3.4%, according to EDD's rate guidance. Your specific rate depends on your experience rating and arrives on your DE 2088 notice each December.
What does FUTA and SUTA mean?
FUTA stands for the Federal Unemployment Tax Act, a federal employer tax that funds unemployment program administration nationwide. SUTA stands for State Unemployment Tax Act, the state-level version that California calls UI, and both apply to the same first $7,000 of each employee's annual wages.
How does a FUTA credit reduction affect California employers?
When California carries an outstanding federal UI loan balance, the Department of Labor can reduce the standard 5.4% FUTA credit, raising the net FUTA rate above 0.6%. The EDD's FUTA history page tracks the state's loan status and any resulting credit reduction for the filing year.