Posted on October 30, 2024
We estimate that growth in federal tax withholding–the combined amount of income and payroll taxes withheld from workers’ paychecks and remitted as quickly as the next day to the U.S. Treasury Department–slowed significantly in October. Based on data released daily by the U.S. Treasury, we estimate that withholding in October was 4.1 percent above the amount from October of a year ago. That is the lowest growth rate since January of this year and since April 2023 before that (see the chart below). In most recent months, withholding has been between 5 percent and 7 percent above the same month from the prior year. (Note that we adjust the raw amounts of withholding to standardize the business days across months and–though not needed recently–to remove the estimates effects of tax law changes.)
We expect that some share of that slowdown in October was caused by Hurricanes Milton and Helene, but how much cannot be quantified. The released withholding data are nationwide totals, with no breakdowns. And we hesitate to say that most or all of the slowdown was caused by the hurricanes. Certainly some individuals affected by the storms in Florida, North Carolina, and other states will unfortunately be out of work and not receiving a paycheck, which directly reduces the amounts of tax withholding. (Others may eventually receive additional income from the cleanup and rebuilding.) In addition, the IRS provided individuals and businesses affected by the hurricanes significant extensions of deadlines for filing income tax returns and making certain tax payments, but as usual with such relief, businesses received more limited delays for remitting withholding amounts. Affected firms were allowed to delay their withholding remittances by different lengths of time depending on their location, but by our count all such extensions for Hurricanes Milton and Helene have already expired, with the last one expiring on October 21 for certain Florida businesses. Nonetheless. some firms whose operations have been severely compromised are doubtlessly still unable to remit the withholding amounts, and if they aren’t able to pay their employees, withholding taxes go down in any event.
The Bureau of Labor Statistics (BLS) at the U.S. Labor Department will release its employment report for October on Friday of this week (November 1). We’ll see what they show for employment and wages, and if they have anything to say about the effects of the hurricanes on their estimates. The more comprehensive estimate of wage growth for October from the Bureau of Economic Analysis won’t be available until late November and is subject to much revision.
