Posted on June 3, 2024
Federal tax withholding–the combined amount of income and payroll taxes withheld from workers’ paychecks and remitted daily by employers to the U.S. Treasury–continued to increase at a solid, healthy pace in May. Over almost each month of the past year, withholding has grown within a relatively narrow band of 5 percent to 7 percent above the amount from the same month of the prior year. In May, we estimate that withholding grew by 6.2 percent above the amount from May of a year ago (see the chart below). Those growth measures all adjust the amount of withholding to standardize the makeup of business days across months (which otherwise can affect the reported monthly amounts significantly), and the growth measures also remove the estimated effects of tax law changes (with no adjustment currently needed).
Tax withholding tends to move with economywide wages and salaries, at least after adjustment to the withholding amounts for tax law changes and monthly calendar effects (again, see the chart below). That relationship should not be a surprise given that an employee’s tax withholding is based in large part on their wages and salaries. Federal tax withholding data is also available more quickly than are measures of economywide wages and salaries. The measure of economywide wage and salary growth in May from the Bureau of Labor Statistics becomes available on Friday of this week with the release of the employment report for the month, and the more comprehensive measure of wages and salaries for the month from the Bureau of Economic Analysis becomes available in late June, although it is subject to much revision.
