Employer’s responsibility to withhold new Portland-based taxes

 

By Christine M. Zinter
Bullard Law,

With tax season right around the corner, employers may find themselves suddenly fielding inquiries about two new Portland taxes that became effective January 1, 2021 and will first be due April 15, 2022. In May 2020, voters in the greater Portland Metropolitan District* voted in a Supportive Housing Services tax (SHS) in order to help end homelessness. This measure includes two separate taxes—a personal income tax and a 1% business income tax on net income for businesses with gross receipts above $5 million.

Further, in November 2020, Multnomah County voters approved the Preschool For All (PFA) program meant to establish a tuition-free preschool program which is slated to start in September of 2022. This program is funded solely through a new personal income tax.

Both of these programs tax high wage earners (single tax filers with a gross income of $125,000, joint tax filers with a gross income of $200,000) effective January 1, 2021. It also includes a requirement for employers to mandatorily withhold these income taxes from employees who earn more than $200,000 annually, effective January 1, 2022.

*The Metro Council’s jurisdiction includes 24 cities and unincorporated portions of Clackamas, Multnomah, and Washington counties, stretching from Forest Grove to Troutdale and south to Wilsonville. To determine whether your residence, workplace, or the place you earn a business income is subject to Metro’s tax, you can look up your property address here.

To learn more about these taxes and the employer’s responsibility to withhold, please keep reading.

Metro Supportive Housing Services (SHS) Tax

This new 1% marginal income tax is levied on taxable income of more than $125,000 for individuals and $200,000 for couples filing jointly, plus a 1% tax on profits from businesses with gross receipts of more than $5 million.

For residents of the Metro district, the tax is applied on 100% of Oregon’s taxable income. For nonresidents, the tax applies only to income attributable to sources located in the Metro district. For telecommuters and others working a hybrid schedule, only the portion of income earned while physically working within the Metro boundary is taxed. This aligns with the way Oregon taxes income on nonresidents (such as employees who telecommute from Washington, which we discussed in our November 2, 2021 alert.

Employer Payroll Withholding Responsibilities – SHS

Beginning January 1, 2022, employers with worksites in the Metro district must provide payroll withholding for employees earning $200,000 annually (payroll withholding in 2021 was voluntary). However, employees may opt in or out of withholding by providing you with this form. Employers outside the Metro area may choose to withhold this tax as an employee convenience.

The City of Portland Revenue Division is administering and collecting these taxes on the Portland Revenue Online system, and the tax payment frequency is the same as an Employer’s federal and state withholding due dates based on federal liability.

Business Income Tax – SHS

Businesses within the Metro jurisdiction with over $5 million in gross receipts regardless of geography are subject to a new 1% business income tax. The tax applies to partnerships, C corps, S corps, limited liability companies, and estates/trusts. Unlike the Multnomah County business income tax and City of Portland business license fees, sole proprietorships are not subject to this SHS tax.

Businesses may apportion income based on percentage of business activity both within and without the Metro district. The methods of apportionment are the same as those used by Multnomah County and the City of Portland and may be found here.

Preschool for All Tax – PFA

This new 1.5% income tax is levied on taxable income of more than $125,000 for individuals and $200,000 for couples filing jointly, plus an additional 1.5% on taxable income over $250,000 for individuals and $400,000 for joint filers.

For residents of Multnomah County, the tax is applied on 100% of Oregon’s taxable income. For nonresidents, the tax applies only to income attributable to sources located in Multnomah County. For telecommuters and others working a hybrid schedule, only the portion of income earned while physically working within Multnomah County is taxed.

Employer Payroll Withholding Responsibilities – PFA

As with the SHS Tax, beginning January 1, 2022, employers with worksites in Multnomah County must provide payroll withholding for employees earning $200,000 annually (payroll withholding in 2021 was voluntary). However, employees may opt in or out of withholding by providing you with this form. Employers outside Multnomah County may choose to withhold this tax as an employee convenience.

As with SHS, payments are made through the Portland Revenue Online system, and the tax payment frequency is the same as an Employer’s federal and state withholding due dates based on federal liability.

Please contact your Bullard Law attorney for more information on these new income tax rules.

The content of this Alert is provided for general information purposes only. It should not be considered legal advice or used as a substitute for consulting an attorney for legal advice.

Content ©2022, Bullard Law. All Rights Reserved.