Although most attention has been focused on federal tax changes in the Tax Cuts and Jobs Act (TCJA) passed late in 2017, Oregon residents also need to be aware several important changes in state taxes.
Keep Oregon Moving (HB 2017)
In August 2017, the Oregon legislature passed HB 2017, a $5.3 billion transportation bill to support road maintenance and preservation, improve public transportation, and reduce congestion in Portland. To pay for these improvements, the bill includes several tax changes, the most notable of which is the imposition of a .1% payroll tax for all Oregon residents.
This tax ($1 on every $1,000 of income) will be applied beginning on July 1, 2018. It will be levied on wages as well as on taxable distributions from retirement accounts.
HB 2017 also includes an increase in the gas tax over the next six years, additional taxes on the sale of new cars and new bicycles, and higher annual vehicle registration fees.
529 Withdrawals for K-12 Expenses
The TCJA included a provision for families to use 529 accounts to pay up to $10,000 per year in qualified education expenses for K-12 private schooling. Due to Oregon law, however, our state’s residents may not be able to utilize this tax benefit.
When Oregon residents contribute to 529 accounts, they receive a deduction on their state income taxes (up to $4,660 for married filing jointly couples). State law currently allows that deduction only for higher education expenses. This means that Oregon residents who spend 529 funds on K-12 educational expenses risk not only losing the state income tax deduction in the year of withdrawal but also having to reimburse the state for any previous years’ income tax deductions taken on the amount withdrawn.
The Oregon legislature has not issued final guidance and is advising families to hold off on paying private school expenses from 529 plans pending additional direction.
While these changes are less expansive than those implemented under TCJA, they represent important considerations for Oregon residents. We will provide updates as more information becomes available on 529 plans. In the meantime, don’t hesitate to contact Arnerich Massena with questions about how these changes affect your cash flow and planning needs.