Oregon families stand to receive several billion dollars under the coronavirus relief bill President Joe Biden signed Thursday, money aimed at helping households recover from one of the deepest economic downturns in American history.
But in Oregon, unlike most other states, the relief programs will also generate higher state tax bills unless the Legislature acts to exempt them. Lawmakers are working on a plan that would offset the higher taxes with direct payments to low-income Oregonians.
Here’s the issue: Oregon is one of six states that allow residents to deduct part of their federal taxes from their state income taxes. That usually means a lower Oregon tax bill for most people.
Congress, though, structured the two stimulus programs it approved last year -- and these latest payments -- as tax rebates. So a $1,400 stimulus payment and a $3,600 child tax credit reduce federal tax liability.
Lower federal taxes mean there’s less to deduct from your Oregon income taxes, which in turn means you owe more state taxes.
The state’s latest estimates are that Oregonians received $5 billion in stimulus payments last year, generating $160 million in additional state taxes for roughly 900,000 people. There are no estimates yet on how much Oregonians would owe from this latest stimulus bill.
To be clear, Oregonians will come out ahead -- way ahead -- in the latest coronavirus relief package.
The $1.9 trillion stimulus program provides payments of $1,400 for most people, tax credits of up to $3,600 per child, and an exemption from income taxes on jobless benefits received during 2020.
Still, many Oregonians could be in for a nasty surprise when they file next year’s taxes and discover this year’s windfall came with strings attached. A family of five could receive nearly $20,000 in stimulus checks and child credits, which could generate a significant state tax hit that many might not plan for.
It’s difficult to precisely calculate what individual families may owe in additional taxes. The state estimated that Oregonians who received the first stimulus checks last spring would owe an average of $130 apiece in additional taxes.
Oregonians can adjust their withholding to allocate more money from each paycheck in anticipation of the eventual higher tax bill. Roughly speaking, allocating 9% of whatever they expect in stimulus payments would cover the additional taxes.
But it may be that some Oregonians don’t end up owing the additional tax.
Lawmakers from both parties have called on the Legislature to erase the tax penalty associated with the stimulus payments. Senate Bill 842, introduced last week by Sen. Dick Anderson, R-Lincoln City, would do just that but doesn’t yet have a legislative hearing scheduled.
Danny Moran, spokesman for Democratic House Speaker Tina Kotek, said the House Committee on Revenue is crafting a plan to nullify the tax penalty “in the quickest and simplest way possible.” He said committee Chairwoman Nancy Nathanson, D-Eugene, is proposing direct payments to low-income Oregonians subject to the additional taxes.
“Speaker Kotek supports this ongoing work to send targeted relief to Oregonians who have been disproportionately impacted by the pandemic recession,” Moran said Thursday.
Gov. Kate Brown’s office said last month, and again Thursday, that she wants any state financial assistance to be targeted to families that need the most help.
“The Legislative Revenue Office and the Department of Revenue will need to thoroughly analyze the legislation,” said Liz Merah, spokeswoman for the governor. “We’ll need to review any recommendations they may have as a result of that process.”
-- Mike Rogoway | mrogoway@oregonian.com | twitter: @rogoway
The Link LonkMarch 12, 2021 at 08:01AM
https://www.oregonlive.com/business/2021/03/stimulus-bill-will-send-billions-to-oregon-families-but-they-may-owe-millions-in-additional-state-taxes.html
Stimulus bill will send billions to Oregon families, but they may owe millions in additional state taxes - OregonLive
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