Posted on November 2, 2023
We estimate that federal tax withholding–the amount of income and payroll taxes withheld from workers’ paychecks and remitted daily to the U.S. Treasury–grew by 6.7 percent in October (compared to the amounts from October 2022). That is a step-up from the growth of between 5.1 percent and 5.6 percent recorded each month from May through September (see chart below). It is only one month of data, and withholding may have been boosted somewhat in October by payments of amounts that the IRS allowed to be delayed as a result of natural disasters mainly in California last winter (see post of October 23). Our measure of withholding growth adjusts the actual amount of withholding to remove the estimated effects of tax law changes (with no such adjustments needed this year) and to standardize the calendar across months. We have no basis for adjusting the withholding growth estimates to remove the effects of IRS-granted disaster relief. Normally such IRS relief would not move the withholding growth needle at all significantly, but last month may have been different. We’ll see if the higher growth in tax withholding continues in November or if the step-up in October was temporary.
Tax withholding growth in the past several months, at least through September, has been roughly in line with recently-available data on economywide wages (including salaries) from the National Income and Product Accounts (NIPAs) as measured by the Bureau of Economic Analysis (again, see the chart below). Those wage and salary data are not yet available for October. If tax withholding growth in October was boosted by payments deferred by the natural disasters, then we would not expect wage and salary growth to increase in October like it did for withholding.
