In our previous post, we discussed the Oregon business tax increases resulting from House Bill 3405, which passed the Oregon Senate last Thursday. Coupled with HB3405 is the sister bill regarding individual tax increases – House Bill 2649. This bill is also headed for Governor Kulongoski, who has already made a statement of support for the bill, so now is the time to start looking at the details and adjusting your estimated tax payments if needed.
Individual Tax Rate Increases
For tax years beginning on or after January 1, 2009, the Oregon income tax rate increases for individuals with taxable income of more than $125k is as follows (previous tax rate was a flat 9% at these income levels):
- 10.8% on excess taxable income over $125k but under $250k
- 11% on excess taxable income over $250k
For tax years beginning on or after January 1, 2012, the 10.8% rate is reduced to 9.9% for excess taxable income over $125k but under $250k; however, the 11% rate for excess taxable income over $250k remains the same.
The tax rate on taxable income under $125k remains unchanged at 9%, so we are just talking about the income above $125k here. For a more detailed breakdown of the rates at different income levels, see page 2 of HB2649.
Phase-Out of Federal Income Tax Subtraction
HB2649 also creates a new phase-out of the Federal income tax subtraction that starts at $125k for single taxpayers and $250k for married filing joint. Under current law, there is no phase-out of the subtraction and as of 2008, the maximum deduction was $5,600 MFJ or $2,800 single/MFS. Below are the phase-out windows for the subtraction under HB2649 beginning January 1, 2009:
- Single/MFS – phase-out starts at $125k with complete phase-0ut at $145k.
- MFJ – phase-out starts at $250k with complete phase-0ut at $290k.
Not All About Tax Increases
There are some small “benefits” they threw into HB2649:
- Oregon will exempt the first $2,400 of unemployment income received.
- They will not charge penalty and interest to taxpayers that underpay as a result of the tax increases (how gracious of them).
I am sure they will be releasing more detailed information after the Governor signs this into law, but hopefully this helps give you an basic understanding of the new changes. To get an idea of the impact of the tax increase, review these 2006 Oregon tax statistics.
If you will be affected by these tax increases, be sure to call your CPA or tax professional as you may want to revise your remaining Oregon estimated tax payments for 2009 – or at least get an estimate of the additional tax that will be due.