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 March came in $217 million (2 percent) above projections included in 2024-25 Governor's Budget. After strong February and March collections, PIT withholding is running 1 percent above projections included in the 2024-25 Governor's Budget and and 5 percent above last 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: February and March Withholding Up Sharply, Despite Weak Labor Market. The figure below shows percent change in monthly income tax withholding compared to the same month of the prior year. February and March withholding came in well above prior year levels and budget projections. In February and March, the state collected unusually large one-day withholdings on the third Thursdays (February 23 and March 21). These days exceeded the prior year amounts for the same days by more than $1 billion. Unusually large collection days may be related to equity withholding at some of California's large 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.