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California employers make regular income tax withholding payments for their employees. These amounts are reported every weekday, providing a real-time indication of the direction and magnitude of aggregate change in the employers’ payroll. Most withholding payments are for employees’ wages and salaries, but withholding is also due on bonuses and stock options received by employees.

Compared to Recent Governor's Budget Projections. Monthly PIT withholding for February came in $1.2 billion (16 percent) above projections included in 2024-25 Governor's Budget. The state collected half of this amount (roughly $600 million) on leap day, meaning February's month-to-month comparison is difficult to interpret. The state also collected a large amount of equity compensation withholding on February 20th, which had the effect of lifting the month's withholding total an additional $500 million compared to 2023. Overall, PIT withholding is running 1 percent above projections included in the 2024-25 Governor's Budget and and 3 percent above the prior year. 

Broad Trend: PIT Withholding Has Regained Ground Since Late 2022. Total personal income tax withholding declined sharply during the second half of 2022 and early 2023, as shown in the figure below. Due in part to stock price increases at California's biggest technology companies (as we discussed in this post), withholding regained some ground beginning in mid-2023.

Recent Trends: Underlying Withholding Trend Underwhelming, But February Revenue Total Sharply Higher. The figure below shows percent change in monthly income tax withholding compared to the same month of the prior year. Withholding growth trailed off in December (up 1 percent over December 2022) and January (down 1 percent from January 2023). Top line February withholding came in well above budget projections, and 21 percent above February 2023. As mentioned above, February's withholding total may have been boosted by a $600 million collection on leap day. An apples-to-apples comparison of the same 5 week period in 2023 suggests underlying February withholding was running just 3 percent higher than 2023. The state also collected an added $500 million on February 20th, relative to last year, which appears to be the single-day withholding from equity compensation packages at several large California technology companies. Equity withholding amounts are influenced by the company's current stock price, and many California technology company valuations are up sharply since February 2023.


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