Frequently Asked Questions about the New Oregon Transit Tax
Does my employee who lives out of state still have to pay this tax?
The new statewide transit tax requires all employers to withhold, report, and remit one-tenth of one percent (0.001) of wages paid to their employees to the Department of Revenue. The tax is withheld from the wages of:
- Oregon residents (regardless of where the work is performed)
- Nonresidents who perform services in Oregon
Does the statewide transit tax affect wage garnishments calculations?
Yes, the statewide transit tax must be deducted from gross wages to determine disposable earnings for wage garnishments.
How does the department plan to notify employers and employees about this new statewide transit tax before it starts in July?
The ODR is sending a letter explaining the requirements of the new tax to each employer registered to file and pay income tax withholding in our system. This initial letter will include information about:
- The statewide transit tax in general
- Reporting and paying the tax
- Important due dates
- How to register for Revenue Online to report and pay taxes electronically
Additionally, the department is continually updating its website with new information related to complying with the statewide transit tax. Please check the website regularly for updated information: http://www.oregon.gov/DOR/programs/businesses/Pages/statewide-transit-tax.aspx
If a domestic worker is under the limit for filing a W-2 (a house cleaner for example), does the employer still have to withhold the statewide transit tax?
If the domestic worker’s wages don’t meet the exemption in OAR 150-316-0237(3) or the general exemption in ORS 316.162(2)(c), the employer is required to file statewide transit tax returns/reports and withhold the tax from their wages.
If an employee is subject to a transit payroll tax (Lane or Trimet), will they also be subject to the statewide transit tax?
These two taxes aren’t related. Employees are not subject to the transit payroll tax; employers are The transit payroll taxes are imposed on the employer based on the amount of payroll. The statewide transit tax is imposed on the wages of each employee. The employer is responsible for withholding, reporting, and paying the statewide transit tax just as they are for state income tax withholding.
Is the statewide transit tax withheld from bonus payments? If so, will it be taxed at the same rate?
Yes, bonus payments are considered remuneration under ORS 316.162(2). Therefore, bonus payments are subject to the statewide transit tax and are taxed at the same rate as regular wages (one-tenth of one percent). This also is true for tips, fees and commission payments to employees.
Is the statewide transit tax withheld from military pension income?
As a result of HB 4059 (2018), military pension income is not subject to the statewide transit tax.
Is there a minimum dollar threshold for filing the statewide transit tax return? If so, is the threshold quarterly or yearly?
There is no minimum dollar threshold for filing and remitting the statewide transit tax, even if the amount of statewide transit tax withholding is minimal. Employers will need to file the return and remit the amount of tax withheld each quarter unless they are an annual filer (agricultural or domestic employers).
Is there a penalty if an employer doesn’t withhold, file a return for, or pay the statewide transit tax? What about employees who don’t include the tax when they file and pay their personal income taxes?
There are penalties for Oregon employers who don’t file and/or pay the new transit tax timely. These penalties are the same as penalties for failure to file report for or failure to pay income tax withholding. In this instance, the employee would not be penalized because they’re not the party responsible for filing or paying under the law. There is also an additional penalty that may be imposed for knowingly failing to deduct and withhold the statewide transit tax from employee wages. However, if an Oregon resident works for an out-of-state employer who doesn’t fall under Oregon’s taxing jurisdiction, the Oregon resident is responsible for reporting and paying the tax and can be penalized for not doing so.
The 2018 Form OR-WR, the annual withholding reconciliation report, has been updated with additional boxes to report the statewide transit tax. Will there also be changes the forms used for quarterly reporting?
There is a quarterly requirement to report the subject wages and statewide transit tax withheld for every employee. Employers will use the new statewide transit tax employee detail report that is similar to the Form 132, which captures information by employers who pay unemployment insurance and are subject to state income tax withholding. Statewide transit tax forms (quarterly return, annual return, employee detail report, and payment voucher) are on the “Forms” page of the ODR website.
Is there a yearly reconciliation filing requirement for the statewide transit tax?
Yes. The current Form OR-WR (Oregon Annual Withholding Tax Reconciliation Report) was amended to include annual reporting for the statewide transit tax. The new form is now available in the “Forms” section of the ODR website.
The statewide transit tax is based on gross wages, which include retirement income contributions. Wouldn’t the eventual retirement distribution from those contributions also be taxed under ORS 316.189. Isn’t this double taxation?
The new tax mirrors current income tax withholding laws and regulations. It’s up to each employer or tax practitioner to ensure that pre-tax contributions are subtracted from subject employee wages prior to calculating the statewide transit tax. Some examples of pre-tax contributions are deductions for:
- Insurance, cafeteria, or flex spending plans (section 125 plans)
- Retirement plans (e.g. section 401k)
- Health savings accounts
How will out-of-state payers know to withhold the statewide transit tax from retirement income (1099-R)?
As a result of HB 4059 (2018), retirement income distributed as a periodic payment under ORS 316.189 is not subject to the statewide transit tax. Therefore, payers are not required to withhold from periodic payments or report and remit the statewide transit tax. Additionally, as a result of HB 4059 (2018), retirement income is not subject to the statewide transit tax and the statewide transit tax applies only to wages as defined in ORS 316.162.