Posted on April 3, 2025
U.S. federal tax withholding in March continued to grow at a solid rate. We estimate that federal tax withholding–the combined amount of income and payroll taxes withheld from employees’ paychecks and remitted by firms as quickly as the next day to the U.S. Treasury Department–grew by 7.5 percent in March compared to the amount in March 2024. That is a little above the range of 5 percent to 7 percent growth that withholding measured in most months from May 2023 to late 2024 (see the chart below). In the past several months, our measure of withholding growth has moved above 7 percent. I attributed the late 2024/early 2025 higher growth to strong year-end bonuses in the financial sector, but that effect should have waned by March.
Because federal tax withholding moves largely with economywide wages and salaries–absent tax law changes and certain other factors–we expect that overall wages and salaries in the economy continued to grow at a solid rate in March. The Bureau of Economic Analysis (BEA) measure of wage and salary growth, a part of its monthly GDP release, has been slowing and is now well below that of tax withholding (again, see the chart below). We expect upward revisions to the data on wages and salaries from BEA. Initial releases of wages by BEA do not capture year-end bonuses well, and those were strong recently. We expect an upward revision to the BEA data, perhaps as early as May when the main comprehensive data source for the BEA measure for the fourth quarter of 2024 first becomes available. That comprehensive data source does include the effects of year-end bonuses.
