Posted on August 6, 2026
In July, we observed relatively steady growth of federal tax withholding–that is, the overall amounts of income and payroll taxes that employers withhold from workers’ paychecks and remit to the Treasury Department as soon as the day after the workers are paid. We estimate that withholding growth in July was 4.7 percent on a year-over-year basis–that is, comparing the amounts in July 2026 with those from July of a year ago (see the chart below). Growth has moved up and down some in recent months, but the 4.7 percent growth in July is the same as the average for the five previous months, from February to June. That growth is faster than the rate of inflation plus employment growth, so inflation-adjusted, economywide wages per worker appear to be growing despite multiple headwinds this year. (Economywide wage and withholding growth tend to move together over time.) Note that our estimate of withholding growth is on a constant law basis–that is, what it would have been absent tax law changes. Separately, we have estimated that federal tax law changes enacted last year reduced this year’s withholding growth by about 0.6 percentage points. Although withholding growth that we observed for July–which includes the effects of the law changes–was about 4.1 percent, we need to add the 0.6 percent law change effect to yield our estimated constant law growth rate.
