Bottom Line: California income tax withholding collections in August through the 27th were 19.7 percent above August 2020, and collections to date in fiscal year 2021-22 were 20.2 percent above 2020-21.
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 large 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 August 1 to August 27 were up $1.08 billion (19.7 percent) from the same dates in 2020. Initial public offerings do not appear to be a significant driver of this month’s strong withholding growth. Just three California companies have gone public this month, of which only Virgin Orbit was valued over $1 billion.
The next graph shows cumulative withholding since the start of the fiscal year compared to the same dates in 2020-21 and 2019-20. Collections were up $2.24 billion (20.2 percent) over 2020-21 and $3.10 billion (30.2 percent) over 2019-20.
The next graph shows federal income tax withholding since July 1 in 2020-21 and 2021-22. Through the 25th, federal withholding was up 18.9 percent from last year, slightly below the state’s pace.