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The Oregon Department of Revenue announced that effective beginning January 1, 2020, new employees, employees claiming exempt from state withholding and those making changes to their withholding allowances must submit new Form OR-W-4, Oregon Employee's Withholding Allowance Certificate, to their employers. (Payroll tax news, emailed by the Department on December 5, 2019.)

Also, employees who have submitted a 2019 or prior version of federal Form W-4 for Oregon and federal withholding purposes, AND who submit a 2020 or later version of the federal Form W-4 to change their federal withholding, must complete a new Form OR-W-4 for Oregon withholding.

Existing employees who previously submitted federal Form W-4 and are not planning to change their federal or state withholding are not required to submit Form OR-W-4. Employers may continue to calculate state withholding based on the previously submitted federal Form W-4.

This announcement is made because the federal 2020 Form W-4 no longer includes the option of claiming personal allowances; however, personal allowances continue to apply for Oregon state income tax withholding purposes.

Decrease in supplemental withholding rate starting in 2020

The Department also announced that the supplemental withholding rate will decrease to 8% effective January 1, 2020, down from 9% for 2019 and previous years.

Oregon law requires flat percentage of withholding for employees who fail to submit Form OR-W-4 ?

As we reported previously, under H.B. 2119 and effective January 1, 2020, employers are required to withhold Oregon state income tax at a flat rate of 8% when employees have failed to previously submit Form W-4 or Form OR-W-4. Under current law, the employer is instructed to calculate Oregon state income tax as single and zero allowances when an employee fails to provide Form W-4 or Form OR-W-4. (EY Payroll Newsflash Vol. 20, #071, 6-6-2019.)??

The new announcement confirms this requirement and adds that an election for exemption from state withholding, claimed by an employee by filing an exemption certificate with their employer, now expires on?February 15 of the calendar year following the year of the election. This follows the federal rules for employees claiming exemption from federal withholding.

If an employee is eligible to claim an election for exemption from state withholding for a subsequent tax year, the employee must provide a new Form OR-W-4 to the employer before February 15. If the employee doesn't provide a new Form OR-W-4 by February 15, the employer must withhold at a flat rate of 8%. If the employee provides a new Form OR-W-4 claiming exemption from withholding after February 15, the employer may apply the exemption to future wages, but should not refund taxes withheld while the exempt status wasn't in place.

An employee claiming exemption from Oregon withholding must meet one of the following requirements:

• The employee's wages must be exempt from Oregon taxation.
• The employee must meet the qualification for having no tax liability.
• An employee claiming exemption from Oregon withholding for having no tax liability must meet both of the following conditions:
• For the previous tax year, the employee had the right to a refund of all Oregon tax withheld because the employee had no tax liability.
• For the current tax year, the employee expects a refund of all Oregon income tax withheld because the employee expects to have no tax liability.

Oregon Form OR-W-4: Background

The Department released state Form OR-W-4, Oregon Employee's Withholding Allowance Certificate, for calendar year 2019 in response to federal changes under the TCJA. For 2019, employers were not required to provide this form to employees, but it was strongly recommended. (EY Payroll Newsflash Vol. 20, #024, 1-23-2019.)??

Employees with an existing "Oregon only" federal Form W-4 did not need to submit Form OR-W-4 or change their allowances for Oregon unless they revised their federal Form W-4 after January 1, 2019. In addition, for 2019 employees could still submit a separate federal Form W-4 for state withholding purposes, rather than Form OR-W-4, by writing "For Oregon only" at the top of the federal Form W-4.?

The Department released an online withholding calculator to make determining the appropriate amount of Oregon withholding easier for taxpayers.?

For more information on the 2019 rules governing Form OR-W-4, see Publication 150-211-602, W-4 Information for Employers.?

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EY Payroll News Flash