Summary. As we first outlined last year, equity pay at California's large technology companies has become an increasingly large contributor to state income tax withholding. As the AI boom has supercharged California's tech landscape, including sending asset prices for these companies much higher, the market value of equity pay options (and thus the state income tax that must be withheld on those options) has grown commensurately.
Since Last Year, Tech Stock Prices Have Climbed Even Further
Led by Continued AI Boom, California Tech Companies' Stock Values Climbed Even Higher in 2024. As shown in the figure, stock prices at California's largest technology companies have increased substantially above their sky-high 2023 levels.
With Stock Price Run-Up, Equity Pay Now An Even Larger Contributor to Income Tax Withholding. As California's tech companies have grown in size and value, equity pay withholding has increased as a share of total income tax receipts. The figure below illustrates this growth over the past several years, but also highlights just how anomalous the new contribution levels (reflecting roughly the first half of 2024) appear. Overall state income tax withholding from equity pay at California technology companies could make up 10 percent of total income tax withholding this year. (These figures are based on our office's analysis of recent financial reports, including assumptions about what share of their workforce resides in California and the distribution of withholding between state and federal governments.)
What Effect Has New Boost in Equity Withholding Had on State Tax Receipts This Year? For the first half of 2024, income tax receipts were running about 8 percent above their prior year level. Our best assessment is that one-third to one-half of this growth can be attributed to growing equity withholding over the same period.