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Bottom Line: California income tax withholding collections in September to date are 23.5 percent above September 2020, and collections to date in fiscal year 2021-22 are 22.5 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 September 1 to September 24 were up $1.2 billion (23.5 percent) from the same dates in 2020. Recent initial public offerings do not appear to be a significant driver of this month’s strong withholding growth. Seven California companies with an aggregate confirmed market value of $14.6 billion have gone public this month, led by Freshworks at $10.3 billion. In contrast, 16 firms with a confirmed aggregate value of $72.0 billion went public over the same dates in 2020, led by Snowflake, Unity Technologies, and GoodRx which were all above $12 billion. We note that IPO-related withholding on employees’ ‘restricted stock units’ is due on the date that the stock units vest, which may be later than the company’s IPO date.

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 $3.7 billion (22.5 percent) over 2020-21 and $5.0 billion (32.7 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 19.6 percent from last year, somewhat below the state’s pace.


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