The California Employment Development Department (EDD) released its latest July 2025 unemployment data, revealing a labor market that is showing both resilience and strain. The figures portray a changing economy, with the jobless rate creeping up to 5.5 percent, the highest since December 2024. Meanwhile, payroll evidence reflects a slight rise in employment, with some sectors growing and others shrinking.
For individuals, employers, and tax professionals, these updates are more than statistics; they represent the foundation for income stability, tax liabilities, and financial planning decisions. At TaxProNext, we break down the July 2025 report, explain what’s happening across industries, and highlight why these numbers matter for your taxes and financial future.
California’s July 2025 Labor Market at a Glance
The headline figure is clear: California’s unemployment rate rose slightly to 5.5% in July, compared to 5.4% in June. This seemingly small 0.1% increase may not sound dramatic, but it represents thousands of Californians entering or re-entering the pool of job seekers.
At the same time, the state added 15,000 nonfarm payroll jobs, accounting for over 20% of the nationwide job growth (73,000). However, this growth is uneven. Some industries, particularly healthcare, education, and government, are booming, while others, such as technology and business services, are struggling.
Revised June data also showed 9,500 job losses, suggesting that the labor market has been more volatile than initially reported. This reinforces the importance of cautious optimism in analyzing employment trends.
Industry Breakdown: Winners and Losers in July 2025
1. Healthcare and Education Dominate Growth
The Private Education and Health Services sector was the standout performer, adding 23,100 jobs in July. Within this sector:
- Healthcare and Social Assistance alone grew by 23,400 jobs, fueled by rising demand for services, an aging population, and ongoing recovery from pandemic-era workforce shortages.
- Private educational services, however, experienced small declines, but these were overshadowed by healthcare gains.
This is a critical sign that healthcare careers remain one of the most stable employment paths in California, both in urban centers and smaller communities.
2. Government Expands Hiring
The government hiring kept steadily going, and the net addition to the jobs was 7,200 in total:
- Local government was the leader at +7,200 jobs, mostly in the fields of education and administrative services.
- The state government experienced comparatively little growth of +400 jobs.
The federal government reduced marginally by 400 jobs, which offset some of the increase.
It is also encouraging to the job seeker to learn that government careers still are the province of stability, benefits, and predictable tax withholding, appealing in times of economic turbulence.
3. Trade, Transportation, and Utilities See Gains
Trade, Transportation, and Utilities. In this sector, 1,300 jobs were created with the growth in consumer demand as well as the continuation of logistics recovery. Equally, manufacturing an additional 300 work positions, which is a slight but pleasing gain to California manufacturing.
4. Tech, Professional, and Business Services Struggle
Professional and Business Services appeared as the biggest loss was experienced by this sector, with a loss of 7100 jobs in July, with all the industries recording losses.
There were also 1,000 jobs lost in the Information sector (including a large part of the Californian tech industry). Such a drop indicates the current stagnation of the tech sector, which has been lowered by AI-driven automation, overstaffing cuts in the large companies, and lowered venture capital investments in Silicon Valley.
It is a tough market; one industry expert described it as admittedly brutal, with most entry and mid-level technology employees having to search through prolonged periods.
What These Trends Mean for Californians
1. For Workers
- Healthcare professionals are entering a golden era of opportunity, with consistent hiring across hospitals, clinics, and senior care.
- Educators and government employees benefit from increased public sector hiring.
- Tech workers face heightened competition and may need to pivot skills toward AI, cybersecurity, or data analytics to remain competitive.
2. For Businesses
- Businesses in growth sectors should expect higher payroll tax obligations due to increased headcount.
- Tech and professional service companies may need to restructure workforce budgets and prepare for potential tax credits related to layoffs, severance, and R&D.
- Small businesses can benefit from labor availability as workers transition out of struggling industries.
3. For Tax Planning
- More workers in healthcare and government roles mean shifts in withholding patterns, benefits deductions, and retirement contributions.
- Unemployment benefits are taxable federally (Form 1099-G), and recipients can request withholding using Form W-4V or make estimated tax payments. However, in California, unemployment benefits are not taxable at the state level (subtractable on Schedule CA 540).
- Businesses restructuring their teams can generally deduct severance and related costs. While there are no federal credits tied to layoffs, employers may claim credits such as the Work Opportunity Tax Credit (WOTC) when hiring workers from targeted groups, and potentially R&D credits for innovation expenses.
The Bigger Picture: Why the Job Market Matters for Taxes
The unemployment rate is more than just an economic indicator; it directly affects state tax revenues, business tax strategies, and individual filings.
- State tax revenue: Higher unemployment can reduce California’s income tax collections, while growth in healthcare and government roles helps stabilize the tax base.
- Payroll obligations: Employers adding staff must navigate payroll taxes, unemployment insurance contributions, and compliance, areas where mistakes are costly.
- Workers’ tax burden: For individuals, income changes from layoffs, severance, or new employment impact federal and state tax brackets.
At TaxProNext, we’ve observed that during times of labor market transition, taxpayers often face unexpected surprises at filing time, from under-withholding on unemployment benefits to misreported severance packages. Proactive tax planning helps avoid penalties.
Regional Differences: Where Jobs Are Growing or Shrinking
While statewide data tells the big picture, California’s labor market varies by region:
- Bay Area & Silicon Valley: Tech-heavy regions face layoffs, reduced hiring, and increased competition.
- Central Valley & Inland Empire: Transportation, logistics, and healthcare jobs continue to expand.
- Los Angeles & Southern California: Entertainment and information jobs are down, while healthcare and local government hiring are keeping the economy balanced.
For residents, this means relocation or remote work may become key strategies for career stability. For businesses, these differences affect where to open offices, recruit workers, and expand payrolls.
Preparing for the Future: Tax and Financial Insights
The July 2025 unemployment data send a clear message: California’s job market is shifting, not collapsing. To prepare:
1. Workers should:
- Track unemployment benefits for tax reporting.
- Adjust withholding if moving into new roles with different pay structures.
- Invest in skills aligned with growth sectors (healthcare, logistics, public service).
2. Businesses should:
- Review payroll compliance carefully, especially if hiring in multiple industries.
- Explore tax credits for hiring from high-unemployment groups.
- Leverage cloud-based payroll and HR tools to manage compliance efficiently.
3. Tax professionals should:
- Advise clients on the taxability of unemployment insurance benefits.
- Identify deductions for job search expenses, relocations, or professional training.
- Support businesses in claiming credits for new hires and restructuring.
Looking Ahead: What to Watch in Fall 2025
The second half of 2025 will be crucial for California’s economy. Key factors to monitor include:
- Federal interest rate policies and their effect on business investment.
- AI adoption in tech and professional services may create new jobs even as it displaces others.
- Healthcare demand is expected to accelerate as California’s population ages.
- Seasonal hiring trends in retail, logistics, and hospitality are heading into the holiday season.
If current patterns continue, California may see continued growth in essential service sectors alongside structural contraction in tech and information industries.
Final Thoughts
The July 2025 EDD report highlights the two-track nature of the California economy: robust job growth in healthcare, education, and government, and ongoing sluggishness in tech and professional services. The unemployment rate has currently risen to 5.5 percent, and therefore the state is at a fine line of opportunity and uncertainty.
These figures send a warning to workers, businesses, and policymakers to become flexible, to acquire skills, and to plan taxes. At TaxProNext, we have the expertise to help individuals and businesses navigate through these transitions- to ensure compliance, reduce tax liabilities, and transform uncertainty into opportunity.
