CORRECTION TO EXAMPLE 2 – UPDATE: The Multnomah County Preschool for All Tax for 2021
The purpose of this letter is to provide a reminder of the upcoming due date of 4/15 for the new tax.
This also provides an update as to how the new tax works as we have been able to review the tax law as written. This provides more “clarity” on how the tax will work compared to our prior BLOG just after the bill was passed.
Individual tax:
- The tax is based on the Taxable income in excess of the minimum exempt amounts. The taxable income amount is different for Multnomah County residents vs. non-residents (see below). The exemption amounts are:
- $125,000 for single tax filers.
- $200,000 for joint tax filers.
- The tax rate of 1.5% is imposed on the income above these exemption amounts.
- There will be an additional 1.5% on income in excess of:
- $250,000 for single tax filers.
- $400,000 for joint tax filers.
- Residents of Multnomah County will pay the tax on their full Oregon taxable income in excess of the exempt amounts.
- Non-Residents of Multnomah County will pay tax on Multnomah County sourced income. It was previously stated that this would be an allocation based on total gross income. Instead, the tax will only apply to income for which the geographic location of work performance (i.e. the “source”) is within Multnomah County. (See example #3 below)
- Taxpayers who have already been subject to Multnomah County Business Income Tax are allowed a deduction from taxable income for income already subject to Multnomah County Business Income Tax. This includes income earned by sole proprietors, partnerships, and S-corporations.
When are payments due?
- For 2021, there will be no underpayment penalty for failure to withhold or pay quarterly estimated tax payments. The full 2021 tax can be paid when tax returns are filed on April 15, 2022. There will be required withholding and quarterly payment of taxes in 2022. There will be penalties in 2022 for under-withholding or underpayment of quarterly estimated tax payments.
Examples of how the Multnomah County Preschool for All Tax will be calculated:
Example #1:
- Resident of Multnomah County
- Joint tax filing
- Oregon taxable income $300,000
- Calculation of Tax
- Oregon Taxable Income $ 300,000
- Less: Exempt Amount ( 200,000)
- Taxable Resident Income $ 100,000
- Tax Rate x 1.5%
- Tax owed $ 1,500
Example #2:
- Resident of Multnomah County
- Joint tax filing
- Oregon taxable income $750,000
- Calculation of Tax
- Oregon Taxable Income $ 750,000
- Less: Exempt Amount ( 200,000)
- Taxable Resident Income $ 550,000
- Tax Rate x 1.5%
- First Level Tax owed $ 8,250
- Income in Excess of $400k $150,000
- Tax Rate Second Level x 1.5%
- Second Level Tax Owed $ 2,250
- Total Tax Owed $ 10,500
Example #3:
- Non-resident of Multnomah County
- Only Multnomah County “sourced” income is a W-2 for $650,000
- All source gross income from all sources is $1,000,000
- Joint tax filing
- Oregon taxable income $700,000 (has no bearing on this calculation)
- *Note that ONLY Multnomah County “sourced” income is subject to tax
- Calculation of Tax
- Multnomah County “Sourced” Income* $ 650,000
- Less: Exempt Amount ( 200,000)
- Taxable Non-Resident Income $ 450,000
- Tax Rate x 1.5%
- First Level Tax Owed $ 6,750
- Income in Excess of $400k $50,000
- Tax Rate Second Level x 1.5%
- Second Level Tax Owed $ 750
- Total Tax Owed $ 7,500
Example #4:
- Non-resident of Multnomah County
- Only Multnomah County “sourced” income is a W-2 for $150,000
- All source gross income from all sources is $1,000,000
- Joint tax filing
- Oregon taxable income $600,000
- *Note that ONLY Multnomah County “sourced” income is subject to tax
- Calculation of Tax
- Multnomah County “Sourced” Income* $ 150,000
- Less: Exempt Amount ( 200,000)
- Taxable Non-Resident Income $ 0
- Tax Rate x 1.5%
- Total Tax owed $ 0
- Not Required to File Since Income is Not in Excess of Exemption
We hope these updates and examples give you a better idea of how the new Preschool for All tax is going to work. As we indicated earlier, there are no penalties for failure to withhold or pay the tax during 2021, and the taxes will be due on April 15, 2022.