Oregon Law Requires New Withholding Tax for Funding of Transportation Costs

The Oregon legislature recently passed HB 2017, which effective July 1, 2018 will create a new payroll tax on Oregon residents and nonresidents working in Oregon to fund state highway upgrades.  The bill requires that employers withhold a tax of 0.1% from the wages of resident employees and nonresident employees working in Oregon and remit this new tax to the Oregon Department of Revenue. The tax will be deposited into a new Statewide Transportation Improvement Fund (STIF).

Employers are not required to match the employee withholding tax.  The new payroll tax applies to all residents of Oregon, regardless of where services are performed, and to nonresidents for services performed in Oregon.  The bill provides that the Department may require employers to submit the new payroll tax with the quarterly combined tax report and requires that employers file an annual return with the Department.

An employer that fails to withhold and submit the new payroll tax will be held responsible for the payment of the tax in an amount equal to the amount required to be withheld from the employee’s wages. Additionally, the employer will be subject to a penalty of $250 per employee, up to a maximum penalty of $25,000, if the employer knowingly fails to withhold and remit the tax.

Oregon residents that work for an out-of-state employer not doing business within the state will be required to report and pay the tax at the time and in the manner determined by the Department by rule.

Currently, Oregon requires the withholding of state income tax from wages and, in some areas of the state, employer payment of taxes to fund mass transit — Transit District Taxes (TriMet) and Lane County Mass Transit District (LTD). Under the new law, residents and nonresidents will see an increase in their withholding taxes.

Paylocity will continue to monitor the release of this new payroll tax and bring you more information regarding the setup of this tax as the effective date approaches.

Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.