March 27, 2020
Bottom Line: The impact of the COVID-19 outbreak is now noticeable in withholding, with payments this week dropping at a similar rate to the comparable week during the depths of the Great Recession.
California employers are required to make regular income tax withholding payments for their employees, which can provide a real-time indication of the direction and magnitude of the aggregate change in the employers’ payrolls. Most withholding payments are for employees’ wages and salaries, but withholding is also due on bonuses and stock options received by employees. We caution against giving too much weight to withholding numbers in any given week because a single anomalous day can result in numbers that are difficult to interpret. Nonetheless, given the pace and possible severity of the shift in the state’s economy resulting from the COVID-19 outbreak, tracking weekly withholding is worthwhile as a way to assess the state’s rapidly changing economic situation.
The first graph compares withholding payments received this week to payments received in the comparable week in 2019, which ran from Monday, March 25 to Friday, March 29 of that year. In contrast to last week, withholding this week was noticeably affected by the outbreak, as payments this week were down 15 percent compared to the same week a year ago.
The second graph compares the year-over-year percent change in withholding (withholding this week relative to the same week in 2019) to the percent change during the same week in 2009 (withholding in the same week in 2009 relative to the same week in 2008), when the state was in the depths of the Great Recession. The drop in withholding experienced this week is of similar magnitude—although not quite as severe—as the comparable week in 2009.
The final graph compares withholding payments so far in the 2019-20 fiscal year to 2018-19. As of now, year-to-date payments in 2019-20 remain ahead of 2018-19.