In November 2020, Multnomah County voters made a significant decision by approving the Preschool for All Personal Income Tax, an initiative aimed at providing tuition-free preschool for 3- and 4-year-olds. The tax went into effect on January 1, 2021 and has different implications for residents and nonresidents of Multnomah County. Let’s delve into the details of the tax.
What Is the Preschool for All Tax?
The Preschool for All (PFA) Tax is a personal income tax program specifically designed for Multnomah County residents and non-residents who have income earned within Multnomah County. Here are the key points:
- Tax rate: The PFA tax rate is 1.5% on Multnomah County taxable income over $125,000 for single filers and $200,000 for joint filers. There’s a second tier of an additional 1.5% on taxable income over $250,000 for single filers and $400,000 for joint filers.
This means that single filers are taxed at 1.5% on Oregon taxable incomes exceeding $125,000 and taxed at 3.0% on incomes exceeding $250,000. The single filing rules also apply to those married filing separately. For joint filers, it means that Oregon taxable incomes exceeding $200,000 are taxed at 1.5% and incomes exceeding $400,000 are taxed at 3.0%. The joint filing rules also apply to head of household filing status, as well as qualifying widower. - Implementation: The tax went into effect on January 1, 2021.
- When is the tax due date? By April 15 of the following year—the same due date as federal and Oregon individual income taxes.
- What does the future hold? Effective January 1, 2026 the rate increases by 0.8%.
Who Is Subject to the PFA Tax?
- Multnomah County Residents: If you live within the county, 100% of your Oregon taxable income meeting the thresholds is subject to PFA tax. This means that if you live in Multnomah County but have an employer located outside of the county, all of your Oregon taxable income is subject to the tax, if it meets the thresholds.
- Non-Residents with Income Sourced to Multnomah County: Even if you don’t reside in Multnomah County, any income earned within the county boundaries is subject to the tax thresholds. So if you have an employer located within the county and you drive into work every day, then that income is subject to the tax if it meets the thresholds. However, given the same scenario but you work remotely outside of the county a few days per week, that income isn’t subject to the tax. So if you work 50% of the time in the office in Multnomah County and the other 50% of the time at home outside of the county, then only 50% of your income is subject to PFA.
What If My Income Doesn’t Meet the Threshold?
If your income doesn’t meet the criteria listed above in the tax rate section, then you’re not required to file a Multnomah County Preschool for All Personal Income Tax Return. It’s possible that your employer withheld PFA taxes from your wages though, so be sure to review your W-2 and file a return to request a refund of those taxes, even if you don’t meet the filing income thresholds.
Employer Responsibilities
Beginning in 2022, Multnomah County employers are required to withhold the PFA tax on behalf of their employees. Employers should automatically withhold for employees making over $200,000 per year. Employees can choose to opt in or out of withholding based on their individual tax situation by using Form Metro/MultCo OPT Employee Opt in/Out Form: Metro Supportive Housing Services Tax (SHS) and Multnomah County Preschool for All Tax (PFA). Tax withholding tables are also located with this form for employers to know how much to withhold. It should also be noted that the taxable wage definition follows the State of Oregon’s definition of taxable wages (see Oregon Revised Statutes 316.162).
Multnomah County Personal Income Tax Amnesty
For tax year 2021, all penalties and interest were waived for all taxpayers regardless of circumstance. And for tax year 2022, taxpayers who were required to make quarterly estimated payments (those who owed more than $1,000 for 2022) had their quarterly underpayment interest waived as well as their underpayment penalties. The waiver did not include late filing or late payment penalties though. Taxpayers who already paid such penalties and interest for 2021 and 2022 were to be issued an automatic refund. Taxpayers should review their accounts to verify that the appropriate refunds were received.
Conclusion
Personal income taxes and payroll withholdings have become significantly more complex for Multnomah County employers, residents and nonresidents with income sourced to Multnomah County. You should consult with a qualified tax professional about your individual situation.
Disclaimer: This article is intended for information and discussion purposes only and should not be relied upon as tax, legal or financial advice. Each individual and business situation is unique, and application of federal, state and local rules can vary. Consult with a qualified tax professional for advice tailored to your specific circumstances.
