California’s revenue outlook continues to be very positive, the Legislative Analyst’s Office (LAO) reported, as personal income tax withholding collections from September 1 to September 24 were 23.5 percent ($1.2 billion) above the same period in 2020.
For the entire 2021-22 fiscal year up to September 24, withholding collections were 22.5 percent above the same period in 2020-21, the LAO added.
California employers’ income tax withholding payments “can provide a real-time indication of the direction and magnitude of the aggregate change in the employers’ payrolls,” the LAO noted. 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,” the LAO cautioned. “Nonetheless, monthly withholding payments provide a useful near-real-time indicator of the state’s evolving economic situation.”
The LAO said recent initial public offerings “do not appear to be a significant driver” of the strong withholding growth, as there were more IPOs last year (seven California companies with an aggregate confirmed market value of $14.6 billion went public during the first 24 days of last month, compared to 16 firms with a confirmed aggregate value of $72 billion during the same period in 2020).