politics

Got A New Job This Year? You Might Be In For An Unpleasant Surprise Next Tax Season

By Dirk VanderHart (OPB)
Salem, Ore. Sept. 26, 2018 6:45 p.m.

Hundreds of thousands of Oregon taxpayers might be in for a shock when tax time comes around next year: It’s possible they’ll owe the state much more than they expected.

That’s the warning signal state revenue officials sent to sometimes-alarmed Oregon lawmakers this week, as the Oregon Legislative Assembly met for routine “legislative days” hearings.

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The issue isn’t that taxpayers are paying more taxes to the state, Department of Revenue officials say. It’s that their employers might not be taking enough from their paychecks to cover what they owe the state.

“There are going to be individuals that did not have enough withholding that are either going to have a reduced refund or be in a tax-to-pay situation where they may not have been there in the past,” Ken Ross, interim legislative administrator at the revenue department, told the Senate Interim Committee on Finance and Revenue on Wednesday. “They won’t know that until they do their reconciliation and they complete their tax return.”

The potential problem arises from the tax reform package Congress passed in late 2017. The Tax Cuts and Jobs Act created a tax cut for an estimated 70 percent of Oregonians, state officials say. But in the process it changed the scale by which the IRS calculates how much should be withheld from a given person’s check. That amount is calculated by information supplied on a W-4 form — often when employees are just beginning a new job.

But while the federal system changed, Oregon’s process for calculating withholdings has remained the same. That creates an issue: Many people use the same calculation of “allowances” to dictate what’s withheld from their check for both state and federal purposes. With the federal and state systems now out of step, revenue officials believe lots people are having too few state taxes removed from their check.

The issue, says Ross, is most likely to affect anyone who filled out a W-4 form this year, after the federal tax change. With the state’s Employment Department reporting hundreds of thousands of new hires each quarter in Oregon, that means upwards of 1 million taxpayers could be affected. Officials simply don’t know.

“We don’t have any idea of the magnitude, because those forms are submitted to the employer and not the [revenue] department,” Ross said Wednesday.

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The potential mismatch has been mentioned before. The revenue department issued a press release in August, which garnered a number of short mentions by news media. The revenue department at the time pointed to a worksheet taxpayers could use to calculate their optimal tax withholding, and suggested people fill out a separate Oregon-only W-4.

Related: Now That The GOP Tax Bill Is Approved, The IRS Gets Busy

But officials acknowledge that by and large Oregonians are in the dark about this.

“There is a level of concern here at the department that the general public might not be prepared,” said Revenue Department spokesman Derek Gasperini.

News of the issue livened up hearings during the typically mundane, routine Legislative Days session.

“I don’t know any of my neighbors who look at your news releases,” state Rep. Nancy Nathanson, D-Eugene, chair of the House Interim Committee on Revenue, told revenue officials on Tuesday, suggesting the department hadn’t done enough to get the word out.

Later in the hearing, Nathanson told the officials: “We’re going to ask about your Twitter account later. Seriously.”

State Rep. Rob Nosse, D-Portland, also chimed in, saying, “The ramifications of this are starting to overwhelm me a little bit.”

When Ross and Department of Revenue Director Nia Ray made the same presentation to senators on Wednesday, Sen. Herman Baertschiger Jr., R-Grants Pass, reacted with similar concern.

“If what you say is true there’s going to be a lot of folks who have a tax liability for the state of Oregon when they file their taxes,” he said. “That means you’re going to be chasing people down to pay their taxes. Is that what I’m hearing?”

The issue isn't limited to state taxes. Earlier this year, U.S. Sen. Ron Wyden, D-Oregon, was one of two lawmakers to request a review of the IRS's new withholding calculations.

The resulting review suggested a little more than a fifth of taxpayers could have too few of their taxes withheld under the new rules. In July, Wyden called the finding "an alarm bell for the nearly 30 million households that are expected to owe more money come tax time this spring."

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