Oregon Payroll Tax and Registration Guide

Only 101,693 small businesses in Oregon hire employees, while more than 218,000 organizations function as single-person businesses. So, if you’re thinking about starting a business, this Oregon payroll tax and registration guide will provide you with the information you need to file payroll taxes in this state.

Besides the federal payroll taxes, Oregon imposes several state payroll taxes that change from year to year, making it difficult to keep track of the withholding tax amounts for each employee.

Most employers in this state hire tax accountants to ensure they are compliant with the federal and state payroll tax regulations.

However, filing payroll taxes in Oregon isn’t an overly complicated process, and in this guide, I’m going to walk you through all the steps you need to take to complete this process successfully.

Registering a Business in Oregon

A new business, whether it is a sole proprietorship or a corporation, has to be registered at the Oregon Secretary of State office. The entire registration process can be completed online, and you can find all documents you need at the Oregon SOS website.

During the registration process, you will be required to select a business structure as well as the business name.

Entrepreneurs who want to start a sole proprietorship or a general partnership only have to register the organization’s name.

On the other hand, if you want to register an LLC, business, or non-profit corporation, you’ll have to submit the articles of incorporation to the Corporate Division of the Secretary of State office. You also have to obtain local and state licenses and permits required to perform a certain business activity.

The authorities would process and review your application and notify you after four to six weeks if the application was approved.

Obtaining the Employer Identification Number

Once you’ve completed the business registration process, you have to obtain the employer identification number from the IRS. Then, to meet the application criteria, you just have to prove that you own a business on the territory of the United States and provide a valid social security number.

You can apply for EIN online, but you must complete the application in one session because the session expires after 15 minutes of inactivity. EIN will be assigned to your business immediately after you complete the application session.

Optionally, you can fill out the SS-4 form and submit it either through mail or via fax, but if you choose one of these application methods, you will have to wait for EIN between four workdays and four weeks.

Acquiring this number will enable you to open a business bank account, receive payments from your clients or hire employees.

Acquiring the Business Identification Number

Aside from EIN, businesses in Oregon must also obtain the business identification number (BIN) that serves as an organization’s state tax account number. BIN enables you to pay all payroll taxes, so you won’t have to create an unemployment tax account separately.

The application process is straightforward, as you just have to head over to the Oregon Department of Revenue website and locate the Oregon Business Registry webpage. You will receive a BIN up to three days after completing the electronic application.

This process can last up to three weeks if you decide to download the Combined Employer’s Registration 150-211-055 form and submit it via mail. Acquiring this number enables you to hire employees and file their payroll taxes legally.

Oregon utilizes a combined payroll tax reporting system that allows you to file all state payroll taxes simultaneously, and the organization’s BIN functions as the employer’s account number.

Understanding the Oregon Payroll Tax System

Like in all states, businesses based in Oregon are required to pay federal and state payroll taxes. The state imposes a mandatory income tax that depends on the employee’s wage bracket, as well as the unemployment tax.

Moreover, employers are under obligation to withhold the statewide transit tax and deduct contributions to the Workers’ Benefit Fund from the wages of their employees. Federal payroll taxes include federal income tax, Medicare, social security, and federal unemployment taxes.

Businesses are required to match the Medicare and social security taxes for each of their employees and cover the FUTA taxes in full. State and federal payroll taxes change every year, and it is necessary to check the latest tax rate and minimum taxable wage adjustments prior to the start of a new fiscal year.

Gathering the Documentation From Employees

Oregon-based employers must report a new hire to the Oregon Department of Justice up to twenty days after the employment period starts. Employees who were away from the organization for more than sixty days have to be reported as re-hires.

The new hire reporting process is straightforward, and you can complete it through the Oregon Employer Services Portal. Businesses must also acquire several documents from their new employees before they can pay them their first salary.

W-4 Form

All new hires must submit a completed employee’s withholding certificate on their first workday or before their employment period starts. This document contains information about the employee’s preferred tax filing method, number of dependents, or how many jobs they currently have.

The W-4 form should be printed and added to the employee’s file as a paper document. An employer must use the information provided in the document to calculate the employee’s federal payroll tax and determine the appropriate tax withholding method.

OR-W-4 Form

The OR-W-4 form is the Oregon equivalent of the W4-form because it contains the same information as the federal version of this document. Nonetheless, all new hires must fill out this form and submit it to their employees on the first day of work.

The employer should use the information provided in the OR-W-4 form to find a suitable state income tax wage bracket or determine the exact amount that should be withheld from an employee’s paycheck.

I-9 Form

The employment eligibility verification form confirms an employee’s eligibility to work on the territory of the United States. Besides the social security, USCIS, or passport number, a new hire needs to provide a valid document that proves their identity.

Employees have to submit this document before their employment starts. After that, the I-9 form remains in the employee’s file, but an employer must present it to authorities if requested to do so.

Direct Deposit Authorization

Employers cannot deposit wages to checking or savings accounts of their employees without a direct deposit authorization. An employee must provide a valid account and routing numbers, as well as a voided check for the bank account specified in the form.

You can obtain this document from the Oregon Secretary of State Employment Department.

Calculating the Payroll Tax

Employers in Oregon have to withhold federal and state payroll taxes from the wages they pay to their employees. However, the amount they have to withhold depends on a variety of factors, which makes the process of calculating the payroll tax highly technical.

Furthermore, these taxes change constantly, and employers have to recalculate the tax withholding amount for each employee at the start of a new fiscal year. Small businesses in Oregon usually hire professionals to calculate and file payroll taxes for them because of the complexity of the process.

Gross Pay Calculation

Federal and state taxes are deducted from the employee’s gross pay. Businesses that hire part-time employees can calculate their gross by multiplying the number of hours they worked with their hourly rate.

The hourly rate increases for all overtime hours an employee worked which is why it is important to remember that the flat hourly rate doesn’t apply in all cases. The gross pay of employees with full-time contracts includes all benefits and bonuses they might receive during a year.

Their total annual earnings are then divided by the number of payment periods in a fiscal year to determine the gross pay. State and federal payroll taxes apply to sums that remain after pre-tax deductions are removed from the gross pay.

So, if your employee has a 401(k) retirement plan or dental insurance you have to deduct these expenses before proceeding to calculate the payroll tax withholdings.

Withholding Federal Payroll Taxes

The information provided in the W-4 form serves as a guideline employees use to calculate the federal payroll taxes. The IRS offers instructions for employers on how to determine the appropriate tax withholding method for each employee.

Aside from the federal income tax, all other federal payroll taxes have a fixed rate, although in some cases, the rate can be increased or decreased if both the employer and employee meet the requirements.

Federal Income Taxes

Depending on the filing option an employee chooses in the W-4 form, the federal income tax can vary from 0% to 37% of an employee’s wage. This tax is deducted from the employee’s salary, and the employer is not obligated to match it.

The IRS Publication 15-T contains detailed information Oregon-based employers can use to determine the employee’s wage bracket and the rate at which the federal income tax should be calculated.

FICA Taxes

An employer must withhold 7.65% of the employee’s salary for Medicare and social security taxes. The social security tax is calculated at the rate of 6.2% for the first $142,800 an employee earns in a year, and it doesn’t apply to the rest of the employee’s income in the current year.

The Medicare tax rate is 1.45% for all salaries up to $200,000, while an additional Medicare tax applies to wages above this threshold. The extra tax is included in the employer’s payroll tax responsibilities, and it can’t be deducted from the employee’s wage.

FUTA Taxes

The unemployment insurance tax is covered by the employer, and it is calculated at the flat rate of 6% of the first $7,000 an employee earns in a fiscal year. The tax credit reduction of up to 5.4% is available for employers who pay state unemployment taxes regularly.

Withholding State Payroll Taxes

Oregon state payroll taxes include several taxes that are withheld from the employee’s wage. The rates at which these taxes are calculated depend on a variety of factors, which is the reason why it is difficult to estimate how high state payroll taxes are going to be for each employee.

Income Tax Wage Brackets

The state income wage is calculated based on the filing option an employee selected in the W-4 form. This document allows employees to choose from the following statuses:

• Single
• Married filing jointly,
• Married filing separately
• Head of household

Tax rates for each of these statuses range from 4.5% to 9.9%, and they vary depending on the employee’s gross pay.

Hence, the rate of 4.75% applies to Single status employees who earn up to $3,600 per year, while the rate of 8.75% applies to employees with the same status who earn between $9,051 and $125,000 annually.

The 8.75% of annual income rate applies to all employees who opt for the Married filing jointly status and earn between $18,101 and $250,000. The 9.9% state income tax rate applies to all wages above $125,000 or $250,000, depending on the filing status an employee chooses.

Transit Tax

Oregon imposes a flat rate transit tax on all employees working in the state, whether they have a residence or not. The tax is calculated at 0.1% of an employee’s gross pay, and it is deposited to the Statewide Transportation Fund.

Workers’ Benefit Fund

The WBF assessment is aimed at disabled workers and families of workers who lost their lives in the workplace. The tax is calculated at the rate of 2.2 cents per workhour, and it is split evenly between the employer and the employee.

So, the employee’s wage is only reduced by 1.1 cents per hour, while the rest is covered by the employer. The WBF assessment is submitted to the state’s tax authorities together with other state payroll taxes.

Unemployment Tax

The state unemployment tax depends on the business’s tax schedule, ranging from 0.9% to 5.4%. Most new businesses are assigned the 2.6% unemployment tax rate, but this rate is reevaluated as organizations gain more experience.

The state’s base wage to which this tax applies is currently $43,800, but the state tax authorities adjust the base wage for each fiscal year. Employers are also required to cover the special payroll tax offset of 0.9% every quarter.

Figuring Out the Federal and State Unemployment Tax Rates

Employers pay federal and state unemployment taxes, and businesses can’t withhold these taxes from the wages they pay to their employees.

The Oregon Department of Revenue assigns the state unemployment tax rate and tax schedule to organizations based on their annual income and various other factors. Businesses are also required to pay FUTA taxes for all of their employees at the rate of 6% of the first $7,000 of their gross wage.

The federal tax authorities offer a tax credit of up to 5.4% to employers who pay state unemployment tax, so the FUTA tax rate assigned to businesses in Oregon is usually 0.6%.

Employer Payroll Tax Expenses

Besides covering the federal and state unemployment insurance taxes and special payroll tax offset, employers are also expected to match the Medicare and social security taxes. The maximum rate an employer can pay for FICA taxes is limited to 8.55% of an employee’s gross salary.

The state of Oregon doesn’t impose mandatory payroll taxes on businesses, as they are mostly paid from salary tax withholdings.

Filing Taxes to the IRS and Oregon Department of Revenue

Oregon utilizes a combined payroll reporting system that allows employees to file all state payroll taxes at the same time. The filing frequency for the state and federal payroll taxes is the same since businesses can choose between semi-weekly and monthly filing options.

The only exception is the state unemployment, transit, and WBF assessment taxes that are filed quarterly. Employers can use the Oregon Payroll Reporting System to submit tax reports or make payments from the Oregon DOR’s payments page.

Businesses that file federal payroll taxes electronically are required to submit state payroll taxes in the same way. Oregon-based businesses can file federal payroll taxes semi-weekly or monthly, depending on the withheld tax amount.

Employers are required to submit tax reports and statements at the end of every quarter or fiscal year.

Frequently Asked Questions About Oregon Payroll Taxes and Registration

Final Thoughts

Although at first, it can seem complex, Oregon’s payroll tax system is easy to navigate once you become familiar with it.

The state’s income tax is calculated based on the employee’s filing status and wage bracket, so determining how much of the employee’s wage you should withhold shouldn’t take much time.

Besides, the state’s tax authorities have set up a system that allows you to make payments and file payroll tax reports from the comfort of your home. Was this Oregon payroll tax and registration guide useful? Let me know in the comments.