Navigating the New Oregon Transit Tax
The 2017 Oregon Legislature passed House Bill 2017, which includes a new statewide transit tax that becomes effective July 1, 2018. Oregon employers will be required to start withholding an additional 0.1% for the statewide transit tax from the wages of Oregon residents and nonresidents who perform services in Oregon.
This tax is not related to the Lane or TriMet transit payroll taxes which are imposed on the employer. The new statewide transit tax is imposed on the wages of each employee, and the employer is responsible for withholding, reporting, and remitting the tax.
Employers who fail to deduct, withhold, and remit the tax to the Oregon Department of Revenue will be subject to a penalty of $250 per employee, up to $25,000 (in addition to other penalties and interest authorized by state law).
How the New Transit Tax Will Affect Oregon Residents
- The new tax must be withheld regardless of where work is being performed, including work performed in other states.
- Reporting and remitting taxes withheld will be required quarterly or annually. The withholding may be included on the annual reconciliation Form OQ.
- Amounts withheld must be held to be remitted and reported to the Department of Revenue on or before the last day of the month following the previous calendar quarter.
- If the employer is an out of state employer who does not have nexus in Oregon, they are not required to withhold, report or remit.
- Employers without nexus may voluntarily withhold the tax on behalf of their employees.
- Oregon residents are required to self-report and remit the tax if their employer has not withheld.
- Self-reporting and remittance will be done with the filing of individual income tax returns annually.
- Additionally, payers of annuities and certain other periodic payments, including deferred compensation that may be considered wages, must also withhold for the new transit tax.
There is no minimum threshold and there are no exemptions for withholding or filing. Employees who aren’t subject to income tax withholding due to high exemptions, wages below the threshold for income tax withholding, or other factors are still subject to the statewide transit tax. Self-employment income is not subject to this tax.
Revenue from the statewide transit tax will go into the Statewide Transportation Improvement Fund to finance investments and improvements in public transportation services, except for those involving light rail.
For companies who outsource their payroll, it is important the provider handle the processing and implementation of this tax over the upcoming weeks so that the system is accounting for the new tax when it goes into effect. For those who provide payroll in house, the software used should be up to date and the transit tax administered through the system by the time the tax is put in place beginning July 1.