Posted on July 2, 2025
Based on our assessment of the U.S. Treasury Department’s Daily Treasury Statements, U.S. federal tax withholding rebounded in June after two months with slower growth. We estimate that federal tax withholding-–the combined amount of income and payroll taxes withheld from workers’ paychecks and remitted by firms as quickly as the next day to the U.S. Treasury Department–-grew by 6.9 percent in June compared to the amount of withholding in June 2024 (see the chart below). That so-called year-over-year growth was substantially higher than the growth of around 4.5 percent in both April and May.
Because economywide federal tax withholding moves largely with overall wages and salaries in the U.S. economy–barring tax law changes or certain other events such as natural disasters–we expect that wage and salary growth rebounded in June. We aren’t aware of any unusual factors to explain the jump-up in withholding growth in June–with no unusual events affecting the amount of withholding in either June of last year or this year. And certain other factors such as wage distributional shifts can affect overall tax withholding but not overall wages, but those tend not to occur abruptly. There can be statistical noise in the withholding data due to unknown factors. We will see if the employment report for the month, to be released tomorrow morning, is unexpectedly strong. The payroll processing firm ADP reported earlier today their estimate for an outright decrease in private sector employment in June compared to May—clearly not what we see in the federal withholding data.
