Deduction for Federal Taxes (sales, 2014, credit)

[iuecon99]

New to Oregon and not entirely certain how this works. Let's say you have an income of 50K, and you pay $8300 in federal taxes on that. You would be on the hook for $4270 in Oregon taxes without the Federal deduction (side note- Oregon's income tax is insanely punitive).

You can deduct 6250 of the 8300 from taxable income for state purposes, correct? Meaning instead of 50K, Oregon would tax you as if you made 43,750, giving you a tax bill of $3715.50, which is still draconian but reduces your effective Oregon tax to about 7.5%. The more income you make the closer you'll get to 9%.

Do I have this right? If so, I assume anybody working from home chooses to move from Oregon to Washington unless they're extremely attached to being on this side of the river.

[Steve Pickering]

Wow. Is this really a question for a relocation forum? Like any legal question or question who's answer could cost someone life, liberty, and pursuit of happiness, it is best left to a professional, not forum lawyers.

[Nell Plotts]

I can't respond to the detailed questions about the Oregon tax return as I use TurboTax. The Oregon return is on the web.

Yes, if you work from home many live in Clark County near I-205 where they pay no income tax but cross the bridge to Oregon to shop. There is a reason why there is a Costco, Target, Ikea and other retailers immediately south of the Columbia River.

[SyraBrian]

Originally Posted by iuecon99

New to Oregon and not entirely certain how this works. Let's say you have an income of 50K, and you pay $8300 in federal taxes on that. You would be on the hook for $4270 in Oregon taxes without the Federal deduction (side note- Oregon's income tax is insanely punitive).

You can deduct 6250 of the 8300 from taxable income for state purposes, correct? Meaning instead of 50K, Oregon would tax you as if you made 43,750, giving you a tax bill of $3715.50, which is still draconian but reduces your effective Oregon tax to about 7.5%. The more income you make the closer you'll get to 9%.

Do I have this right? If so, I assume anybody working from home chooses to move from Oregon to Washington unless they're extremely attached to being on this side of the river.

Remember that you can also deduct Oregon's "insanely punitve" income tax from your federal income tax. There's a reason why Oregonians generally rank extremely high in amount of earnings deducted from federal taxes.

[Nell Plotts]

Keep in mind that those who pay a sales tax have modest tax deductions on their Federal return (I know, I lived in WA for 15 years). If, like CA, you pay them both you get to 'choose' which one to use. At least in Oregon our non Federal deduction type fees are few, state and property taxes are deductible.

[VTHokieFan]

You can deduct up to $6,100 in federal taxes paid from your Oregon return

[bler144]

Originally Posted by iuecon99

Do I have this right? If so, I assume anybody working from home chooses to move from Oregon to Washington unless they're extremely attached to being on this side of the river.

You have the general principle correct, but your math isn't quite right. I suspect you are just running it off a guide like this one: Oregon Income Tax Brackets 2014.

It's a bit more complex once you actually sit down to do it since there are other deductions (at least the itemized or standard state deduction), plus the $135 or so exemption (which comes off as a tax credit from the calculated tax). What you seem to have used is a useful formula for ballparking, but it's not exactly right. I'd wager your actual effective rate at that income point is closer to 6-6.5%, but I'm not inclined to fill out a complete Form 40 for this hypothetical.

If you made enough income it's even possible to net an effective tax rate above 9%, given that the top tier is actually 9.9%.

[iuecon99]

Originally Posted by Steve Pickering

Wow. Is this really a question for a relocation forum? Like any legal question or question who's answer could cost someone life, liberty, and pursuit of happiness, it is best left to a professional, not forum lawyers.

Point taken. After additional research I have decided to move to Washington no later than the end of this year. I'm surprised there isn't more angst about the Oregon income tax given that most long term residents seem to think the government is incredibly wasteful with their money.

[iuecon99]

Originally Posted by bler144

You have the general principle correct, but your math isn't quite right. I suspect you are just running it off a guide like this one: Oregon Income Tax Brackets 2014.

It's a bit more complex once you actually sit down to do it since there are other deductions (at least the itemized or standard state deduction), plus the $135 or so exemption (which comes off as a tax credit from the calculated tax). What you seem to have used is a useful formula for ballparking, but it's not exactly right. I'd wager your actual effective rate at that income point is closer to 6-6.5%, but I'm not inclined to fill out a complete Form 40 for this hypothetical.

If you made enough income it's even possible to net an effective tax rate above 9%, given that the top tier is actually 9.9%.

Thanks, that' a good reminder. I'm sure I'll discover the details of this when I do my 2014 tax return. 6.5% does seem about right for 50K after looking some more at the numbers. Figure you have to get up to about 100K before you hit 8% effective rate.