On May 9, 2025, New York Governor Kathy Hochul approved the fiscal year 2025—2026 budget (A3006-C, Part MM), which authorizes the transfer of $8 billion from general funds to repay the state's outstanding federal unemployment insurance (FUTA) loan balance. (NY Assembly News Release, 5-8-2025; Governor Hochul press release, 5-9-2025)

As of May 8, 2025, New York's FUTA loan balance was $5.5 billion, and the related annual interest payment, assessed at a rate of 3.12% for 2025, is due September 30, 2025. (U.S Treasury website.)

This approved funding will relieve New York employers of the added FUTA taxes they pay each year that the state carries a loan balance and the New York unemployment insurance (UI) surcharge they pay to assist with the annual federal interest payments the state owes on this unpaid loan balance.

The state began borrowing federal funds to pay state UI benefits in 2020 at the start of the COVID-19 pandemic. Under federal law, a FUTA credit reduction of 0.3% applies in the second year the state carries a federal loan balance and increases by 0.3% in each year thereafter. Starting in 2025 (the fifth year of the loan), an additional assessment, called the Benefit Cost Rate (BCR) applies unless the state qualifies for a waiver.

For 2025, if New York repays its federal loan balance by November 10, 2025, the FUTA credit reduction and the added BCR will not apply. If the approved budget had not included provisions to repay the state's outstanding FUTA balance, the FUTA credit reduction and the added BCR assessment could have potentially added $161 per employee ($7,000 x 2.3%) to the FUTA tax New York employers are required to pay. (US Department of Labor, FUTA Credit Reductions.)

New York law requires that all employers subject to New York state unemployment insurance pay an Interest Surcharge Assessment (ISA) until all interest is paid on its federal loan. The ISA payment notice is sent to employers in June of each year with payment due to the state within 30 days. For 2024, the ISA rate was 0.12% or about $15 per employee. The ISA will no longer apply once the federal loan balance is repaid, and interest is no longer owed.

Ernst & Young LLP insights

How soon New York employers will realize lower UI tax expense depends on when the state repays it federal loan balance. New York employers should monitor developments and adjust their federal and New York unemployment insurance tax accruals based on when repayment of the federal loan is confirmed.