LAO: tech equity pay driving 2024 withholding

Estimates show this withholding rising to record and likely unsustainable highs

In an online post, the Legislative Analyst’s Office (LAO) notes that “equity pay at California’s large technology companies has become an increasingly large contributor to state income tax withholding.”

“Overall state income tax withholding from equity pay at California technology companies could make up 10 percent of total income tax withholding this year,” LAO estimates.

This seemingly would be one type of state tax revenue where recent spikes are unsustainable, alongside other spikes in stock-related income taxes called unsustainable by LAO in its new Fiscal Outlook.

In general, this type of equity pay withholding is treated as “ordinary income” under tax law. Accordingly, spikes in this type of income tax withholding—unlike spikes in capital gains-related income taxes—generally do not result in large additions to the state’s Proposition 2 rainy day fund deposit requirements. One reason this is the case: this type of withholding was not nearly as big a deal in the decade prior to 2014 when Proposition 2 was passed. Moreover, LAO’s recent work on the topic has developed new data spotlighting the issue.