If your small business has employees working in Oregon, you'll need to withhold and pay Oregon income tax on their salaries. This is in addition to having to withhold federal income tax for those same employees. Here are the basic rules on Oregon state income tax withholding for employees.
With rare exceptions, if your small business has employees working in the United States, you'll need a federal employer identification number (EIN). You should obtain your EIN as soon as possible and, in any case, before hiring your first employee. EINs are issued by the IRS and you'll need one first and foremost for federal taxes. In addition, some states use the federal EIN for state withholding tax purposes. Other states (like Oregon) issue separate state tax ID numbers. You'll need an EIN to register with the state (see below). You can apply for an EIN at the IRS website. Generally, if you apply online, you will receive your EIN immediately.
Apart from your EIN and your employer's registration, you also need to establish an Oregon tax account with, and obtain a Business Identification Number (BIN) from, the Oregon Department of Revenue (DOR). You set up your account by registering your business with the DOR online or on paper. (The process also registers your business with other employment-related state agencies.) To register online, go to the Oregon Business Registry (OBR) within the Secretary of State website. If you register online, you should receive your BIN in 1-3 working days. To register on paper, use Form 150-211-055, Combined Employer's Registration. You can download blank forms from the Forms and Publications section of the DOR website. The form can be submitted by regular mail or by fax. If you register by mail, you should receive your BIN in about three weeks. There is no fee to register your business with DOR.
Each new employee for your business must complete a federal Form W-4. Unlike many other states, Oregon does not have a separate state equivalent to Form W-4, but instead relies on the federal form. However, an employee should complete Form 150-206-643, Oregon personal allowances worksheet (W-4), if the employee: (a) claims federal credits that don't apply to Oregon, such as the federal Child Tax Credit (line G on the W-4 form); or (b) claims Oregon credits not allowed on the federal tax form, such as the Oregon Working Family Child Care Credit. You can download blank worksheets from the Forms and Publications section of the DOR website. Clearly label W-4s used for state tax withholding as your state withholding form. You should keep the completed forms on file at your business and update them as necessary.
In Oregon, there are three primary payment schedules for withholding taxes: semiweekly, monthly, or quarterly. In exceptional cases, where withholding tax is extremely high for a particular pay period, there is also a one banking day payment requirement, not otherwise covered here. Withholding for agricultural and domestic in-home care employees may be handled on an annual schedule, also not covered here.
In general, Oregon follows the federal rules for payment schedules, and your state withholding tax payments will be due at the same time as your federal withholding tax payments. Your payment schedule ultimately will depend on the average amount you withhold from employee wages over time. The more you withhold, the more frequently you'll need to make withholding tax payments.
The exact threshold dollar amounts for the different payment schedules, as well as some other state withholding tax rules, currently are based on the federal rules, and may change over time. You should check the IRS and DOR websites at least once a year for the latest information.
Here are the due dates for the various payment schedules:
If the payment is due on a Saturday, Sunday, or holiday, the due date is extended to the next business day.
You will receive reporting instructions from the DOR after you've registered for your BIN. The DOR also will send you a booklet of tax payment coupons unless you've registered to pay by electronic funds transfer (EFT). Many businesses are required under federal law, and therefore also in Oregon, to pay using EFT. However, if you are paying on paper, mail in your payment with an Oregon Tax Coupon (OTC). You can register for the EFT program by completing Form 150-206-030, ACH Credit Agreement and Application for Combined Payroll Tax and Assessment. You can order additional tax coupons or download the EFT application form from the Forms and Publications section of the DOR website.
The DOR provides several different methods for calculating how much tax to withhold. For more information, check the current version of DOR Publication 150-206-436, Oregon Withholding Tax Formulas, which you can download from the Forms and Publications section of the DOR website.
Apart from making scheduled tax payments, businesses also must file quarterly withholding tax returns. The returns reconcile the tax paid for the quarter with the tax withheld for the quarter. You can file the quarterly report online or on paper. For online filing you have two options: (1) Oregon Tax Employer Reporting (OTTER), a downloadable program that runs on your computer, and (2) Secured Employer Tax Reporting Online (SETRON), which allows you to file a return through the web. If you prefer to file on paper, use Form OQ, Oregon Quarterly Tax Report. You can request personalized versions of this form from the Oregon Employment Department or download blank forms from the Forms and Publications section of the DOR website.
Quarterly returns are due on or before the last day of the month following the close of the quarter:
As with tax payments, for payments due on a Saturday, Sunday, or holiday, the due date is extended to the next business day. You must file quarterly returns even if no tax was withheld during a particular quarter.
After the end of the year, you must file an annual reconciliation with the DOR that summarizes the employee taxes you've withheld during the year. The annual reconciliation is in addition to providing each of your employees with a federal form W-2 summarizing the employee's withholding for the year. Use Form WR, Oregon Annual Withholding Tax Reconciliation Report. Unlike some other states, you do not need to send W-2s with your Form WR. The annual reconciliation must be filed by mail. The annual reconciliation is due on or before the last day of February for most small employers. However, if you are submitting W-2s electronically, the due date is extended to the last day of March.
This article is only concerned with employees, not independent contractors. In general, different tax rules apply to independent contractors.
You may decide that it's easiest to hand over responsibility for payroll, including withholding taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on the basic elements of Oregon employee withholding taxes. Oregon law states that corporation officers or employees may be held personally liable for unpaid withholding taxes owed by the corporation. Avoid possible penalties for making mistakes by checking both the IRS and DOR websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.