SALEM – Last year’s federal stimulus payments will generate an additional $ 112 million in Oregon taxes due to a quirk of state tax law.
Taxes will hit 877,000 Oregon taxpayers, roughly half of all taxpayers who received state stimulus payments in 2020 and early 2021. They would owe an average of $ 130 apiece, including many lower-income workers who would owe $ 100 or more.
Legislators from both parties say this is unfair and lawmakers are exploring a solution that would wipe out the higher tax burden. With the April tax return date fast approaching, it is not clear whether there is consensus to make a change.
Here’s why this happens:
Last March, Congress approved stimulus checks of $ 1,200 for adults and an additional $ 500 for children, with the amount falling for wealthier taxpayers. A second round, approved in December and paid out in early 2021, paid $ 600 per adult and another $ 600 per child – again with a decline in the totals in wealthier households.
The stimulus payments were structured as tax breaks, meaning they are not subject to federal or state income tax. But Oregon is one of six states that allow taxpayers to deduct a portion of their federal tax payments from their state income taxes.
For most years, the deduction acts as a government tax break. But when the government distributes free money, the size of that break will decrease. A lower federal tax burden means you will have to deduct less from your state taxes.
The Legislative Revenue Office estimates Oregon will collect an additional $ 103 million this year and $ 9 million next year from taxes generated by this stimulus money. That’s 3.6% of the $ 3.1 billion in stimulus money the Oregonians received.
However, this tax hike will not affect everyone. Low-income Oregonians with no federal tax liability do not pay higher state taxes, and some high-income residents with high federal tax loads also stop paying.
In general, the more people earn, the more they will owe – but even some Oregonians who earn less than $ 50,000 a year owe $ 100 in additional taxes. That’s a big part of their stimulus payments.
(The calculations of who owes how much are complex and vary significantly depending on the taxpayer’s income and marital status. See some detailed examples from the state here.)
While 2008 stimulus payments had a similar effect on Oregonians’ taxes, few expected the pandemic relief payments to add additional cost. And few people seem to have put money aside to cover costs.
According to US Representative Peter DeFazio, D-Springfield, Congress intended to make stimulus payments tax-free.
“It is incomprehensible to ask the working families, who have struggled the most in this crisis, to shoulder the weight of the state’s budget deficit,” DeFazio wrote last week in a letter to Governor Kate Brown and lawmakers. He asked them to exempt the Oregonians from these higher taxes.
Dick Anderson, Oregon State Senator, R-Lincoln City, plans to enact law to protect Oregonians’ stimulus checks from tax implications.
“The sole purpose of federal stimulus checks was to help people when they needed it most,” Anderson said in a statement last week. “There is no justification for the state to take anything from the top. Helping people get back on their feet means helping them have more money in their pockets. “
Governor Kate Brown’s office said it was interested in an “overall talk” about the tax impact of stimulus programs in Oregon. Spokeswoman Liz Merah said the governor wanted to look at the issue of stimulus taxes in the broader context of how federal aid programs have impacted Oregon’s budget.
Other elements of the programs, she said, have lowered Oregon’s tax revenue, and further changes could come with a new bill before Congress.
“The governor’s goal is to ensure that we provide government funding to the most needy families hard hit by this pandemic,” Merah said.
House spokeswoman Tina Kotek, D-Portland, appears to be open to a solution to the economic tax. Its spokesman, Danny Moran, said the House Committee on Revenue is reviewing the issue and the spokesman looks forward to feedback from the committee chairman, Nancy Nathanson.
Rep. Nathanson, D-Eugene, however, noted that Oregon law requires tax changes to take effect 90 days after the end of a legislature – currently scheduled for June, well after the April 15 tax deadline. Many people have already started filing their taxes. Nathanson said she is looking at when the state can change tax returns.
“I’m looking for options that can help people who need them as easily and quickly as possible because tax laws are time-limited,” she said in an email. “This legislator has time to think about separate measures in connection with the tax return for 2021. In other words, we’re looking for one approach to helping people this year and another approach for next year to helping the Oregonians who need it most. “