US Income Growth Proxy

Income growth proxy: how to read it

• What it is. Federal income tax withheld from paychecks plus employee and employer FICA, deposited by employers daily. It moves with total payroll, so it is a near-real-time read on nominal wage income, weeks before BEA or BLS.
• Where it works. The level of growth over 13 weeks or more, and big turns (2009, 2020). In calm years it does not track month-to-month changes in BEA wage growth (correlation near zero since 2023), but the 12-month gap averages under 1pp.
• Where it breaks. Tax-law changes move withholding without any change in income: the 2011–12 payroll tax holiday, the 2018 TCJA withholding tables, and the CARES Act employer Social Security deferral (repaid at year-end 2021 and 2022). Bonus season and stock-comp vesting add noise in Q1.
• Open question for 2026. Whether the 2025 tax law (OBBBA) changed 2026 withholding tables or Form W-4. If it did, withholding growth would understate income growth this year. Not yet checked.
• Calendar. Rolling windows use weeks ending Friday against the same weeks 52 weeks earlier, so weekdays line up. The month table uses calendar months to match BEA, which makes single months noisier.
• Series. From 2023-02-14: DTS Table II “Taxes – Withheld Individual/FICA” plus Table IV inter-agency transfers of the same category (federal agencies’ own payroll, about 4–5% of the total). Before that: the old Table IV “Withheld Income and Employment Taxes”. $ millions, not seasonally adjusted.

Data sources

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