In December 2017, Congress passed the Tax Cuts and Jobs Act (TCJA). Some of the federal changes directly impact Oregon's personal income tax, including changes to calculating withholding allowances for tax year 2018. These changes, combined with Oregon's dependence upon the federal form to determine state withholding, have created a situation where there's an increased risk of taxpayers not having enough withheld from their wages to cover their tax liability. This will result in more taxpayers having a tax to pay at the end of the year, or having more tax to pay than usual, which may lead to taxpayers dealing with unexpected and difficult financial burdens.
We've redesigned our withholding calculation worksheet to accommodate recent federal changes. Previously, federal withholding allowances met Oregon's withholding needs fairly well. However, due to recent federal tax law changes and changes made to the 2018 federal Form W-4 to adjust for those changes, the form is no longer reliable in determining Oregon withholding.
We're working on designing an online calculator that will do much of the calculation work from the worksheet automatically. We're also designing an Oregon-specific Form W-4. Both will be available by January 2019.
To appropriately address this issue, we'll be collecting data, analyzing options and impacts, and drafting a legislative concept for the 2021 Legislative Session to overhaul Oregon's withholding process. The goal is to implement a new withholding process in 2022 that provides Oregon with more control over withholding calculations and requirements than it currently has due to ties to the federal processes.
If you filled out the new federal Form W-4 or Form W-4P during 2018, you need to check your Oregon income tax withholding using our withholding worksheet.
Generally, you should review your withholding at the end of each year and make any adjustments before the beginning of the new tax year.
What if I filled out the worksheet and I'm withholding too much or too little?
If you're withholding more than your estimated tax liability, you'll likely be due a refund when you file your taxes. You can adjust your withholding and get more money with each paycheck.
If you're withholding less than your estimated tax liability, you'll owe money when you file your taxes. If your total amount of tax due isn't paid by the due date of your return (usually April 15) or if you owe more than $1,000 when you file, you may be charged penalties and interest. To avoid this, adjust your Oregon withholding to have more taken out of each paycheck, or make estimated quarterly payments throughout the year. See Worksheet OR-WW for information on adjusting your withholding or Publication OR-ESTIMATE for information about estimated payments.
You can easily share information about withholding changes with your employees through a message on their paystubs. If you issue paper paystubs, try these easy-to-print stuffers. For electronic paystubs, consider adding—or asking your payroll service provider to add—the following language:
"If you filled out a federal Form W-4 in 2018 or if the federal tax law changes impact you, you might not be withholding enough to cover your Oregon tax liability, which could result in you owing money when you file your taxes.
To find out if you're withholding enough for your state personal income taxes, go to www.oregon.gov/dor and click on the link for "Oregon Withholding Worksheet."
Employers aren't required to ensure their employees are withholding properly. You're only responsible for withholding based on what they provide on the Form W-4. Please make Worksheet OR-WW, Oregon Withholding Worksheet, available to your employees when they fill out their federal W-4s so they can determine the correct amount of withholding for Oregon.
About Oregon income tax withholding
Personal income taxes are the foundation of Oregon's General Fund. The pay-as-you-earn system of personal income tax withholding provides a consistent and stable revenue stream to support the public services Oregonians rely on.
What is withholding?
"Withholding" is the amount you have withheld from your paychecks to cover your anticipated income tax liability for the year. Your employer withholds the amount you specify—based on how you fill out the federal Form W-4—and sends it to the Oregon Department of Revenue and the IRS, where it's applied to your tax account. The total amount withheld from your paychecks is reported on the Form W-2 that your employer sends to you in late January or early February. When you file your personal income tax return for the year, you'll claim the amount withheld from your paychecks and subtracted it from the amount you owe. If the amount you owe is more than the amount withheld, you'll have to pay the difference. If the amount you owe ends up being less than what was withheld, you'll be due a refund.
How does my employer know how much to withhold?
Employers use the federal Form W-4, Employee Withholding Certificate, submitted by their employees, to determine the federal withholding amount. Unless the employee files another federal Form W-4 marked "For Oregon only" showing different withholding allowances for state income taxes, employers will use the information on the federal Form W-4 to calculate Oregon withholding. There isn't widespread knowledge of the option to create an Oregon-only version of the federal form, so when most employees adjust their federal withholding, their Oregon withholding is automatically adjusted.
Can my employer help me determine how much I need to withhold?
Your employer may offer to help you fill out your Form W-4, but they aren't required to ensure you're withholding enough to cover your federal and Oregon tax liabilities. Ultimately, you're the one responsible for making sure you withhold enough to cover your taxes. To ensure you're withholding the correct amount, you should use Worksheet OR-WW, Oregon Withholding Worksheet.
Why is there a difference between what I withhold for federal taxes and Oregon taxes?
Your withholding is based upon your estimated tax liability for the year. Your Oregon tax liability is different than your federal tax liability, as the tax rates and other items you claim on your return, such as deductions and credits, are different for federal and state taxes.