Bottom Line: California income tax withholding collections over the past two weeks were 9 percent above the comparable weeks in 2019, pushing total withholding since late March to 2.5 percent above the same period last year.
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 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 evolving economic situation.
The first graph compares withholding payments received this week to payments received in the comparable week in 2019, which ran from Monday, October 7 to Friday, October 11 of that year. Withholding was up 74 percent from the comparable week in 2019. The first few processing days of every month tend to have much higher collections than the rest of the month. Three days of this week were among the first five processing days in October, compared to just one day of the same week last year. As such, it is more meaningful to compare the past two weeks to the same weeks in 2019. Collections from September 28 to October 9 of this year were 9 percent above collections from September 30 to October 11 last year.
The second 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 October 9 are up 2.5 percent ($910 million) from the same period in 2019. Two weeks ago, the tracker showed an increase of 1.9 percent ($651 million).
The final graph shows the year over year changes in cumulative withholding for California in 2020, the United States in 2020 (from the federal income tax), and California in 2009 at the trough of the Great Recession. California’s withholding picture has improved lately, unlike federal withholding this year or the state’s own withholding at the same stage in 2009. While California’s economy has been hurt at least as badly by the recession as the national economy has, its withholding collections have likely held up better because its income tax falls more heavily on the higher-paid workers who have experienced fewer employment losses than their lower-paid counterparts. Federal withholding this week was up 39 percent from 2019, but the past two weeks combined were down 6 percent. California withholding this week in 2009 was up 17 percent from 2008, but the past two weeks combined were down 13 percent.