Bottom Line: California income tax withholding collections in December to date are 19 percent above December 2019. Total withholding since late March is 5.2 percent above the same period last year.
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 initial public offerings) that are unlikely to recur. Nonetheless, given the pace and severity of the shift in the state’s economy resulting from the COVID-19 pandemic, tracking monthly withholding is a useful way to assess the state’s evolving economic situation.
The first graph shows that withholding payments to date in December 2020 are up 19 percent from the comparable days in December 2019. This month has had an unusually high level of IPO activity, including DoorDash and Airbnb which are the two largest California firms by market capitalization to go public this year.
The second graph shows total withholding collections since Monday, March 23, when we first started to see evidence of an impact of the pandemic on withholding. As shown in the graph, total collections between March 23 and December 23 are up 5.2 percent ($2.660 billion) from the same period in 2019. As of November 20, the tracker showed an increase of 3.5 percent ($1.550 billion).
The final graph shows the year over year changes in cumulative withholding for California in 2020, the United States in 2020 (from the federal income tax), and California in 2009 at the trough of the Great Recession. California’s withholding picture has improved lately, unlike federal withholding this year or the state’s own withholding at the same stage in 2009. While California’s economy has been hurt at least as badly by the recession as the national economy has, its withholding collections have likely held up better because its income tax falls more heavily on the higher-paid workers who have experienced fewer employment losses than their lower-paid counterparts. Federal withholding so far this month is up 7 percent from 2019, and California withholding in December to date in 2009 was up 9 percent from 2008.