Matt Trivisonno shares with us some of the research he does at Daily Jobs Update regarding payroll withholding taxes.

He notes that in March, there has been a very strong surge in withholding taxes. The amount is roughly equivalent to 300,000 new workers being paid $30,000 salaries.  Matt presume many of these jobs are Census hires.

How he arrived at the 300,000 estimate:

In February, the un-adjusted growth in withholding taxes over February 2009 was -2.28%. For the first 21 business days of March, the growth rate is +3.12%. That’s a miraculous 5% jump, the bulk of which is almost certainly the result of Census Bureau hiring. Let’s take a look at how many new jobs would fit this size of a leap:

The dollar amount of March’s gain is $4,764,000,000.

Divide that by 21 days, and we get a daily average of $226,860,000.

Divide that by 5 and we get $45,370,000 per work week.

So, how many new workers would be required for the IRS to rake-off $45,370,000 per week more in taxes this month? A good ballpark figure might be 300,000 new jobs.

If you hired 300,000 workers and paid them an average annual salary of $30,000, your weekly payroll would be $173,076,923 (300,000 * 30,000 / 52).

If you withheld 26.5% in taxes from each paycheck, the total would be $45,865,385 ($173,076,923 * 0.265), which is pretty close to the increase in March’s withholdings so far.

However, the withholding data is not detailed in any way by the Treasury Department, and we only have totals to work with. So, we can only make very, very rough estimates since there is a wide range of salaries, multiple tax brackets, and the fact that many workers will have had their hours increased as opposed to being newly hired.

Nevertheless, the Bureau of Labor Statistics should report a very large number on Friday morning.

The Census Bureau hasn’t published any hiring statistics that I have seen, but the consensus among economists is that they have hired 100,000 workers in March. They could have hired quite a lot more of the planned 1.2 million total, but the army of door-knockers isn’t scheduled to hit the streets until May, though they will likely go on the payroll for training well before then.

The bottom line is that Friday’s jobs report should be very strong, though it could disappoint the market if the Census Bureau was responsible for the bulk of hiring as opposed to the private economy.

All data and charts via Matt Trivisonno Trivisonno.com and Daily Jobs Update

Category: Taxes and Policy, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

56 Responses to “Payroll Withholding Taxes Surge in March”

  1. Marcus Aurelius says:

    Now all we need is 300,000 houses priced at $90K, and to make census counting a permanent and non-stop function of government, and all will be well.

  2. dss says:

    We know of some one who was hired for $18.00 an hour.

  3. dss,

    I saw a report that said that the Census Bureau is paying $11-$22 per hour.

    Matt

  4. DoctoRx says:

    How does his data correlate w ADP’s?

    For sure the Gallup.com hiring/not hiring survey data did call the downturn and has shown in realtime absolutely no pickup this month.

    Perhaps it really is Census plus post-snowstorm hiring Matt is picking up?

  5. DoctoRx.

    I haven’t studied how the ADP data correlates to the withholding-tax data. Of all the economic reports that the market deems important, ADP is probably the least-esteemed. It also doesn’t go back very far since they have changed the formula from the original. Nevertheless, I am sympathetic to their report this morning showing a modest loss of private-sector jobs. After all, we don’t have a housing cycle.

    Matt

  6. drewburn says:

    Withholding for someone making 30-40 would be less than 26.5%, I believe. This would imply more jobs.

  7. tagyoureit says:

    Finally, some actual money in the economy, instead of sitting in a reserve account at the FED. I hope the census workers spend 120% of this income.

  8. drewburn,

    Yes, they would be in the 15% tax bracket:

    http://www.irs.gov/pub/irs-pdf/n1036.pdf

    However, that’s only income tax. To that, you must add withholding for Social Security and Medicare.

    Matt

  9. Mr.E. says:

    In January Time reported that the Census Bureau intended to hire 1.2 million part-time workers, and pay between $10 – $25 / hr.

    http://www.time.com/time/business/article/0,8599,1951980,00.html

  10. deeterm says:

    Why do you divide by 5 for weekly data?

  11. dead hobo says:

    There’s something screwy in your calculations. Please rework them.

    The daily avg / .15 = daily payroll, assuming avg of 15% taxable income.

    Multiply daily payroll * proper number of days to get annual payroll

    Divide by average annual wage to get number of jobs linked to withholding tax increase.

    I can’t get anything close to 300,000. Something is messed up somewhere.

  12. deeterm,

    The Treasury Department reports the data each business days; 5 days per week. So far in March, there have been 21 reports, which actually spans 4 calendar weeks.

    Matt

  13. Pool Shark says:

    So the increase in witholding taxes is due to census hiring?

    So…. The feds are paying workers out of federal tax receipts, who are in turn paying a fraction of that (26%) back into federal tax receipts.

    I guess this is a transfer of currency from the fed’s right pocket to the fed’s left pocket with nearly three-quarters of the money slipping through the fed’s fingers during the transfer…

  14. dead hobo,

    If you can write something more coherent, I will respond. But see above where I state that in addition to income tax, Social Security and Medicare taxes are also withheld, and they are substantial.

    Matt

  15. Pool Shark says:

    btw, good to see you recognized here at TBP Matt.

    Love your blog…. been lurking for a couple years…

  16. dead hobo says:

    Matt Trivisonno Says:
    March 31st, 2010 at 12:53 pm

    dead hobo,

    If you can write something more coherent, I will respond. But see above where I state that in addition to income tax, Social Security and Medicare taxes are also withheld, and they are substantial.

    Mat

    reply:
    —————
    Matt, I just annualized the numbers you provided using basic business math. It can’t be made more coherent. Something is messed up in the numbers you provided.

  17. dead hobo says:

    OK, the high school math version

    Daily average tax receipts / tax rate = daily average wages associated with the withholding

    daily average wages * working days in year = annual wages

    Annual wages / average income = number of jobs.

    Using withholding tables, 15% appears to be a typical annual tax burden for the middle class

    Since I am unfamiliar with your raw numbers, you can supply the proper number of work days to use.

    Now, coherently show how you provided a 300,000 jobs figure using basic business math.

  18. deeterm says:

    So why are you dividing the daily amount by five to get the weekly amount?

  19. drewburn says:

    Understood, Matt. Thanks.

  20. dead hobo says:

    deeterm Says:
    March 31st, 2010 at 1:10 pm

    So why are you dividing the daily amount by five to get the weekly amount?

    reply:
    ———–
    Government math.

  21. Mary M says:

    deeterm Says:
    March 31st, 2010 at 1:10 pm

    So why are you dividing the daily amount by five to get the weekly amount?

    ——–

    This confuses me as well. If I use the unit cancellation method for calculating the weekly withholding, I would use:

    Total $/# days * #days/week = $/week

    So in this case it would be $4,764,000,000/21 days * 5 days/work week = $1,134,286,000 per work week

    Is this correct?

  22. awells1902 says:

    … The dollar amount of March’s [month] gain is $4,764,000,000.
    At $2,500 per month salary, 20% witholding (should be less, but let’s go with 20) is$500.
    Divide it into the above amount, and you have 9,528,000 of these individual witholdings, i.e. jobs.

    Double the monthly salary, leave 20% witholding (which is still high for both a single making $60K, and joint with AGI 90K), that makes it into $1000 witholding and – the math could not be simpler – 4,764,000 jobs.

    Yeah, the math is funny.

  23. awells1902 says:

    Love your blog.

  24. dead hobo says:

    awells1902 Says:
    March 31st, 2010 at 1:32 pm

    Double the monthly salary, leave 20% witholding (which is still high for both a single making $60K, and joint with AGI 90K), that makes it into $1000 witholding and – the math could not be simpler – 4,764,000 jobs.

    reply:
    ——————-
    Best jobs report ever!!! I take back everything I said about phony government statistics and fed pumps. Those people are smart!!! I’m buying me some stocks right now!!!

  25. @dead hobo – Why do you insist on ignoring Social Security and Medicare taxes? They are withheld too.

    @Pool Shark and awells1902 – Thanks.

    Matt

  26. cognos says:

    Dead Hobo –

    C’mon… you do see Matt explained exactly why you were wrong on the 15%. Every single $1 below 104k also has Social Security (6.2%) plus Medicare (1.5% ?). Oh yeah… then the employer matches those SS and Medicare numbers… so thats another 7.7% or something. Oh yeah, so then estimated total taxes are about 26%.

    But then yeah… I might agree with you on the main point — which is: I am not sure this means anything.

    Dont alot of year-end bonuses get paid in March?

  27. dead hobo says:

    Matt Trivisonno Says:
    March 31st, 2010 at 1:44 pm

    @dead hobo – Why do you insist on ignoring Social Security and Medicare taxes? They are withheld too.

    reply:
    ————
    OK, use 15% + 7.65% and even feel free t0 bump it up a little to 25% total withholding just because the govt is a tax hog.

    The 300,000 number still doesn’t figure out.

  28. dead hobo says:

    This is frickin’ basic arithmetic!!!!! Just plug and chug using the ‘correct’ numbers, annualize them using the formulas I provided (and if you claim they are bogus, you will be identified as math illiterati) and concisely show your work.

  29. dss says:

    Matt,

    Do you have any charts that are pre-2001? Great chart, btw.

  30. awells1902 says:

    Let’s make it even simpler:
    … The dollar amount of March’s gain is $4,764,000,000. [That is one month's gain in withholdings.]
    How many jobs would produce this withholding at $20/hr? [$20/hr is about $3,200 per month.]
    With 100% withholding [=$3,200] we still need 1,488,750 jobs [4,764,000,000 / 3,200 = 1,488,750].

    That is the reason why you need to divide by 5 instead to multiply by five to get these 300,000 jobs. You can get similar result by having 300% withholding instead the 26.5%, but many people would not want to take a job in which they would have to pay the employer $7,200 per month instead of getting a paycheck.

  31. Rikky says:

    >>Of all the economic reports that the market deems important, ADP is probably the least-esteemed

    i’m not sure why one would conclude this. adp pays 18% of all us workers (legal that is) across small (0-50 employees), mid size (50-500 employees) and large companies (500+ employees). they use REAL payroll data to feed the models. while the model itself might have some quirks i would trust ADP’s report far more than say the BLS who uses ridiculous concepts like the birth/model adjustment and has far more reason to manipulate their calculations.

  32. cobbob says:

    You wouldn’t divide by 5 to go from days to weeks you would multiply. In your blog you say there is a daily average of $226 million and a weekly one of $45 million. How can you have a higher daily withholding than a weekly one? If you reverse engineer your numbers and start with $45 million per week in withholdings and multiply that by 3 weeks you don’t even get close to the $4.7 billion you have listed.

  33. Cynic_FA says:

    RE: Math Quiz

    Should start by thanking Matt for sharing insights about tax withholding with us. And kudos to BR for efforts to focus on information and analysis to help us get better.

    The problem I have is the transition from the $4.7 bill March gain to the $45 mill per week

    I read this as $4.7B reported for March over a 21 day period. Ok divide by 21 to get a daily average of $221 million. This is labelled as daily average. How is the next step “Divide by 5″ to get work week when I am guessing that you need to multiply the daily average by 5 to get a work week.

    Monthly / 21 = Daily $4.76B/21 = 227MM/day
    Daily * 5 = Weekly $227MM*5 = $1.13 B/week
    $1.13B/ $150/worker/week = 7.5 million new jobs – ???? possible error

    Maybe this is what Dead Hobo wants to say about high school math.

    My challenge to the numbers is why would you divide the daily number by five to get the weekly number?

  34. cognos,

    I don’t know. However, I did see a large surge in the withholding taxes in January which I’m sure was from the bonuses. However, by February, that surge ended.

    Matt

  35. dss,

    Sorry, no. There is some older data, but not enough to calculate an annual growth rate from. The Treasury Department hasn’t published older data. The report is a financial statement prepared by accountants, as opposed to an economic report prepared by economists, like the NFP report. So, it’s a different animal.

    Matt

  36. Rikky,

    That is the opinion of traders and economists; they don’t like the ADP report very much. ADP does indeed have real data, but they use it to try to guess what the BLS will report. The report strikes me more as a publicity stunt, where they release it two days before NFP to get cheap publicity for their payroll-processing business.

    Matt

  37. dead hobo says:

    Matt,

    What’s the problem. You made a little goof in your arithmetic that others picked up on quite readily, but you decide to ignore me because I first asked a reasonable question but then got a little pointed when you blew me off. Earth to Matt … you goofed. Your arrogance in this matter makes me wonder how common these errors are when other in the finance ‘luminati’ arena throw numbers together and forget to check their work.

  38. torrie-amos says:

    what about early filers who owe and redid w-2′s, that has to be something?

  39. Moss says:

    I suggest that Matt post this data each month so perhaps it can be modeled to the actual job number put out.

  40. deeterm says:

    Data needs to be seasonally adjusted

  41. Rikky says:

    matt i have little doubt its a marketing channel for adp, however i don’t believe its meant to duplicate the BLS since it doesn’t contain public employee information and the algoirthms are a bit different. just because the traders and economists don’t prefer it doesn’t make it less accurate.

  42. dead hobo,

    Speaking of arrogance… why do you think that my day is dedicated to answering your questions? However, you are right. The number should be multiplied by 5 rather than divided, and the jobs projection should be much larger.

    Matt

  43. Rikky,

    Last year, I think, ADP said that they changed their methodology so that their estimates would come out closer to the BLS’s.

    Matt

  44. deeterm,

    The $4,764,000,000 number above is the gain of March 2010 over March 2009, using only the first 21 business days of each month since this month is not over yet. Also, the days of the week are synchronized so both numbers contain the same number of large paydays.

    Matt

  45. dead hobo says:

    Matt Trivisonno Says:
    March 31st, 2010 at 3:50 pm

    dead hobo,

    Speaking of arrogance… why do you think that my day is dedicated to answering your questions? However, you are right. The number should be multiplied by 5 rather than divided, and the jobs projection should be much larger.

    Matt

    reply:
    —————
    Apology accepted. Keep at it. The only people who don’t make mistakes are people who don’t do anything.

  46. torrie-amos,

    Unfortunately, the Treasury Department just doesn’t post any such details, so there is no way to know. However, I think that it’s safe to say that the vast majority of workers have the “normal” amounts withheld from their paychecks.

    Matt

  47. The Treasury Department just released today’s number, and it was a miss compared to the corresponding day from last year. The year-over-year growth rate for March now stands at 2.02%.

    March 2009 total = $156,043,000,000
    March 2010 total = $159,200,000,000
    Growth = $3,157,000,000

    There is an extra business day in March this year, so for comparison purposes I would say that the month is in the can. Both monthly totals above are comprised of 22 business days and the same number of large paydays (4).

    I will post something about the February 2010 to March 2010 comparison in a few minutes.

    Matt

  48. February 2010 total = $139,591,000,000
    March 2010 total — = $159,200,000,000 (so far)

    That’s a large gain, but March has a few more days in it. So let’s adjust for that. Since both months started on a Monday this year, we can compare the first 4 weeks of each month and get an apples-to-apples comparison. There was one less report from the Treasury Department in February due to Presidents Day, however, that number gets carried over to the next day. So, comparing the first 19 business days of February to the first 20 business days of March is legitimate since they both span 4 pay periods.

    The February number is the same as above since the month consisted of exactly 4 pay periods.

    Summing the March reports from the 1st to the 26th gives a total of $147,255,000,000.

    That’s an increase of $7,664,000,000, or 5.94%.

    And that’s a very large jump which supports a very large number of new jobs added, Census jobs though they may be.

  49. Rflip says:

    Sorry if this was already noted but beware that March is when many companies pay out incentive bonuses from the previous year so March should always see a bump over February. Unfortunately I don’t have statistics.

  50. Rflip,

    OK, but there is a clear gain over March of 2009, so that accounts for seasonal factors.

    Matt

  51. cognos says:

    Matt — thanks for the reply.

    My anecdotal evidence says that bonuses tend to be paid in Jan OR Mar. Its loose.

    And at the same time, in many cases I hear 2008 bonuses were BETTER than 2009 because in 2008 we had 3 pretty good business Qs. While 2009 was all depressed. So this is very hard to separate out and forecast from.

    Any way you slice it… higher payroll tax withholdings should mirror higher pay generally and that should drive continued recovery. Whether its jobs, taxes and deficit, or 401k account build, etc.

    It just yet another data point on the long (3-yr?) march of a normal recovery.

  52. cognos,

    We also have a withholding tax credit that went into effect in April 2009. So, the March 2010 to March 2009 comparison is even stronger than what is indicated by the reported data.

    Matt

  53. dss says:

    Matt,

    Thanks for sticking around and answering the questions. Very rare these days.

  54. [...] all morning until 11:30pm when Barry Ritholtz published my withholding-tax data in “Payroll Withholding Taxes Surge in March” (blue arrow). The market then rallied for 21 straight minutes (blue line), exceeded the ADP [...]

  55. creditdefaultswap says:

    Another day’s treasury report since Matt first wrote.
    There was a slight frontload of receipts on Monday March 30, 2010, about a Billion.
    The comparable Tuesdays receipts were 3.32 Billion in 2009, 1.716 Billion in 2010.
    March 2009 total was 156.04 Billion, 22 business days March 2010 159.168

    The daily Treasury report has unemployment receipts, good for non government jobs,
    It is up about 7 million in March 2010, good for about 100,000 jobs.

  56. [...] Last month, Matt Trivisonno  shared his Daily Jobs Update research regarding payroll withholding taxes. (Payroll Withholding Taxes Surge in March). [...]