Posted on September 3, 2026
In August, we observed a move up in growth of federal tax withholding–that is, the overall amounts of income and payroll taxes that employers withheld from workers’ paychecks and remitted to the Treasury Department as soon as the day after the workers were paid. Specifically, we estimate that withholding growth in August was 5.5 percent on a year-over-year basis (comparing the amounts in August 2026 to those from August of a year ago). That is about 0.8 percentage points above the growth that we estimated for July and the same amount above the average growth from February to July. That growth is faster than the rate of inflation plus employment growth, plus a small increase in average income tax rates from economic growth. As a result, we estimate that inflation-adjusted economywide wages and salaries per worker are growing. Note that our measure of withholding growth is adjusted to remove the estimated effects of federal tax legislation enacted last year, which we estimate reduced this year’s withholding growth by about 0.6 percentage points. Removing those effects allows us to more closely link withholding growth with wage and salary growth.
