Posted on February 2, 2026
A quick take here: In January, we observed a rebound in growth of federal tax withholding–the 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. Specifically, we estimate that tax withholding grew by 5.8 percent in January compared to the amounts from January 2025, measuring so-called year-over-year growth (see the chart below). That was about a percentage point below the 6.7 percent growth averaged from June through August last year, before growth steadily declined in September (4.2 percent), October (3.8 percent), November (3.5 percent) and December (2.1 percent). We believe that strong year-end bonuses on Wall Street and beyond explain most of the January rebound. In past years, we have observed withholding growth in January, as well as in December, temporarily moving up and down because of year-end bonuses. In addition, the multiple holidays in December and January make it harder for us to find reference periods for estimating withholding growth, which can raise the volatility in those months (see our methodology). We shall see in coming months whether the end of bonus season results in withholding growth returning more in line with its autumn 2025 amounts, or if the move up in January represents something more economywide and persistent.
