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Bottom Line: California income tax withholding collections in February to date are 7.8 percent above February 2020. Total withholding since late March is 6.4 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 14 collection days in February 2021 are up 7.8 percent from the first 14 collection days in February 2020. As the graph shows, the day to day pattern this month has been very similar to last February.

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 February 19 are up 6.4 percent ($4.135 billion) from the same period in 2019-20. As of January 25, the tracker showed an increase of 6.1 percent ($3.599 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, while federal withholding has remained weak. 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 3.4 percent from 2020, and California withholding in February to date in 2010 was up 17.6 percent from 2009.


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