The Eugene, Oregon city website has been updated to reflect that the new Community Safety Payroll Tax, enacted in mid-2019, will not take effect as of July 1, 2020, as originally expected. Instead, the payroll tax takes effect January 1, 2021, with the first quarterly tax return and payment due by April 30, 2021. (Community Safety Payroll Tax FAQs, Eugene, Oregon website; EY Payroll Newsflash Vol. 20, #073, 6-13-2019.)

All employers paying wages to employees and self-employed persons with a physical address in the Eugene city limits must register and file the new payroll tax on a quarterly basis with the City of Eugene starting with first-quarter 2021.

The tax will be in effect for seven years (until December 31, 2028). After seven years, the Eugene City Council must refer the continuation of the payroll tax to a public vote, or the tax will be terminated. If the Council does not refer the continuation to voters or the voters reject the continuation, the payroll tax will end on December 31, 2028.

Public government employers are exempt from the employer payroll tax; however, public government employees are subject to the employee payroll tax if they work at a public employer located in the Eugene city limits. Nonprofit IRC Section 501(c)(3) organizations are subject to the employer payroll tax and their employees are subject to the employee payroll tax.

Overview

As we previously reported, the Eugene, Oregon City Council passed Ordinance #20616 in June 2019, implementing a new payroll tax, the proceeds of which will be used for "sustainable funding for city-wide public safety efforts."

The Community Safety Payroll Tax is expected to generate $23.6 million annually to provide faster, more efficient safety responses, deter crime, connect people to services, engage and help at-risk youth, support more investigations and court services, and add jail beds to reduce capacity-based releases.

Draft administrative rules should soon be released that will provide more detailed instructions for how the tax will be administered and collected.?The draft rules will be available for public comment on the City's website. The City plans to mail information regarding the draft administrative rules to local employers.

Employers may also sign up for the Payroll Tax Interested Parties email list. A payroll tax estimator tool is also available on the website.

Employer details

Employers will need to register with the City to report and pay the Community Safety Payroll Tax. The City is currently working with a tax administration service that will provide online tools for registering, filing tax forms, and submitting payments. More information will be posted to the City's website once that service is implemented.

The Community Safety Payroll Tax will be paid on a quarterly basis by employers, employees paid a regular hourly wage of more than the minimum wage ($12 per hour effective July 1, 2020), and self-employed persons with a physical address in the Eugene city limits.

Employers should use the City's "search by address tool," which can be found on the tax website. The Eugene city limits are not the same as the Eugene urban growth boundary and not determined by certain ZIP codes. An employer's address may contain "Eugene," but still be outside the Eugene city limits.

• The employer payroll tax will be applied to total gross wages paid by an employer with a physical address in the Eugene city limits. The employer payroll tax is calculated at a tax rate of 0.21% of total wages paid by an employer. For employers with two or fewer employees, the tax rate is reduced to 0.15% for the first $100,000 of wages paid.
• The employee payroll tax is applied to total taxable wages paid to an employee working at an employer located in the Eugene city limits. The tax rate for the employee payroll tax is based on the hourly rate of the employee:

• For an employee making more than $15 per hour, the withholding tax is calculated at a rate of 0.44% of total taxable wages.
• For an employee that makes between $12.01 and $15.00 per hour, the withholding tax is calculated at a rate of 0.30% of total taxable wages.
• An employee who earns the minimum wage ($12.00 per hour as of July 1, 2020) is exempt from the employee payroll tax.

• The self-employment tax is applied to the net earnings from self-employed persons with a physical address in the Eugene city limits. The self-employment tax is calculated at a tax rate of 0.21% of net earnings from self-employment. For self-employed individuals with two or fewer employees, the tax rate is 0.15% for the first $100,000 of net earnings from self-employment.

An employer is responsible for reporting and paying the employer payroll tax as well as, beginning January 1, 2021, withholding and remitting the employee payroll tax on behalf of all employees with subject wages. The report and tax are due each quarter, with the first report and tax due for first-quarter 2021 by April 30, 2021. When the due date falls on a Saturday, Sunday, or legal holiday, the due date will be the next business day.

Annual Form W-2 required

On the annual Form W-2, employers will be required to report wages subject to the Community Safety Payroll Tax and the amount of tax withheld for each employee. Report the subject wages in box 18 (local wages, tips, etc.), the payroll tax paid in box 19 (local income tax), and "EUG" in box 20 (locality name).

Determining which employees are required to pay the tax

Employees are taxed on all wages earned while working at an employer that is located in the Eugene city limits, regardless of where the work is performed. Therefore, if an employee works from home (or telecommutes) or works at a job site outside of the City limits, but works for an employer located in the City, their wages are subject to the employee payroll tax.

Example 1: Alicia works for an employer located in the City three days a week and works from her home in Springfield two days a week. The employee payroll tax applies to all of Alicia's wages including her wages earned while working from home.

Example 2: Terrance works for a landscaping business located in the Eugene city limits. He occasionally works at job sites located outside the City limits providing landscaping services for clients. The employee payroll tax applies to all of Terrance's wages, even though he performs some of his work is outside the City limits.

If an employer with a physical address in the City has one or more business locations outside the City, no tax is owed by the employer or employee for those hours an employee works at an employer's business location that is outside the City, even if the employee lives in the City limits.

Example: Mark works for an employer that has two separate business locations, Eugene and Junction City. Mark rotates between each business location, working 20 hours per week at each location. Only Mark's wages earned at the Eugene location are subject to the employer payroll tax and employee payroll tax. The wages earned at the Junction City business location are not subject to the payroll taxes.

[Source: Eugene Community Safety Payroll Tax FAQs.]

Determining the wages upon which the tax must be paid

For the employer payroll tax, the tax is applied to the total gross wages paid by the employer for services performed by an employee for an employer, including the cash value of all remuneration paid in any medium other than cash. This includes, but not limited to, salaries, fees, tips, bonuses, or commission on sales. If services are paid for in a medium other than cash, the fair market value of the thing taken in payment is the amount to be included as wages.

For the employee payroll tax, the tax is applied to total taxable wages, after pre-tax deductions.

For the purposes of the payroll taxes, "wages" does not include renumeration:

• For domestic services in a private home
• For casual labor not in the course of the employer's trade or business
• To an employee whose services to the employer consist solely of seasonal labor in connection with the planting, cultivating or harvesting of agricultural crops
• That is not subject to income tax withholding under Oregon Revised Statute (ORS) Chapter 316

Wages earned at the minimum wage ($12 per hour as of July 1, 2020) are exempt from the employee payroll tax. This is true even if the employee receives overtime pay.

Self-employed individuals

For the self-employed, the Community Safety Payroll Tax is applied to the individual's net earnings. Like employers, self-employed person will need to register with the City to pay the tax.

The first annual return and payment for self-employed individuals will be due for calendar year 2021 by April 15, 2022. The self-employment tax is paid on an annual basis and is due the same day as federal and Oregon individual income tax returns (April 15) for calendar year filers. For self-employed individuals filing a fiscal-year return, the return is due on the 15th day of the fourth month following the end of the fiscal year.

Self-employed individuals who are also employers are not subject to the employer payroll tax, only the self-employment tax. However, as an employer, the self-employed individual may be required to withhold and remit the employee payroll tax on behalf of employees.

For more information on the Community Safety Payroll Tax, see the City's website, send an email or call +1 541 682 5053. Employers may also sign up for the Payroll Tax Interested Parties email list. See also the Business Owner's Overview and the Community Safety Initiative notice.

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EY Payroll News Flash