Bottom Line: California income tax withholding collections in July to date are 17.8 percent above July 2020.
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 taxes on stock options associated with initial public offerings) that are unlikely to recur. Nonetheless, monthly withholding payments provide a useful near-real-time indicator of the state’s evolving economic situation.
The first graph shows that withholding payments from July 1 to July 23 are up $815 million (17.8 percent) from the same dates in 2020, when the state economy was emerging from the restrictions imposed in the early stage of the COVID-19 pandemic. Collections are also up $1.07 billion (24.8 percent) over the same period in 2019. This month has also seen the initial public offerings of 14 California companies, led by SentinelOne with an initial valuation of $10.0 billion. Other IPOs of companies valued at $1 billion or more included LegalZoom, Blend, and Couchbase. In contrast, eight California companies went public over the same dates in 2020, but of these only Berkeley Lights was valued above $1 billion. In July 2019, four in-state companies went public through the 23rd, with only Medallia valued above $1 billion.
The next graph shows July federal income tax withholding in 2020 and 2021. Through the 21st, federal withholding was up 15.8 percent from last year, slightly below the state’s pace.