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Bottom Line: Income tax withholding this week was 23 percent below the comparable week last year, a reversal from the previous week’s gain.  

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 pandemic, 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, May 13 to Friday, May 17 of that year. Withholding was down 23 percent from the comparable week in 2019. Monday and Tuesday were very close to the comparable days in 2019, but both Wednesday and Friday had unusually low collections.

The second graph compares the year-over-year percent change in withholding (withholding this week relative to the same week in 2019) to the weekly changes observed in March, April, and May of 2009, when the state was in the depths of the Great Recession. The drop in withholding this week was much sharper than the drop from the comparable week during the Great Recession.  

The final graph shows total withholding collections since Monday March 23, when we first started to see evidence of an impact of the pandemic on withholding. As shown in the graph, total collections between March 23 and May 15 are down 5.0 percent ($517 million) compared to 2019. As of last week, the gap was 3.2 percent ($301 million).


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