Bottom Line: California income tax withholding collections in January to date are 7 percent above January 2020. Total withholding since late March is 6.1 percent above the same period in 2019-20.
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 month, as they often include one-time payments (say, for initial public offerings) that are unlikely to recur. Nonetheless, given the pace and severity of the shift in the state’s economy resulting from the COVID-19 pandemic, tracking monthly withholding is a useful way to assess the state’s evolving economic situation.
The first graph shows that withholding payments through 15 collection days in January 2021 are up 7 percent from the first 15 collection days in January 2020. January is always a big withholding month as year-end bonuses tend to show up in the first week, and collections show a healthy increase over last year despite the overall weakness in the state economy. Total withholding this month should end up less than 7 percent above January 2020, because this month has just 19 collection days whereas last January had 21.
The second graph shows total withholding collections since Monday, March 23, 2020, 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 January 25 are up 6.1 percent ($3.599 billion) from the same period in 2019-20. As of December 23, the tracker showed an increase of 5.2 percent ($2.660 billion).
The final graph shows the year over year changes in cumulative withholding for California in 2020-21, the United States in 2020-21 (from the federal income tax), and California in 2009-10 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 so far this month is up 6 percent from 2020, and California withholding in January to date in 2010 was up 0 percent from 2009.