Orlando Harmon
If your business has employees working or living in Oregon, you must withhold the Oregon transit tax from their wages. This applies to Oregon residents and non-residents who perform services in Oregon. However, certain payrolls are exempted from the transit tax, including foreign insurance companies, their adjusters, agents, and office support staff. Shareholders of a company may be exempt from the Oregon transit tax depending on the nature of their medical insurance and the remuneration structure of the company. This article will explore the intricacies of reporting shareholders' medical insurance for the Oregon transit tax.
How to report shareholders' medical insurance for Oregon Transit Tax
| Characteristics | Values |
|---|---|
| What is the Oregon Transit Tax? | A statewide payroll tax that employers withhold from employee wages. |
| Who pays the tax? | The employer withholds the tax from employee wages and remits it to the state government. |
| How much is the tax? | 0.10% (or $1 per $1,000) of each employee's gross pay. |
| Are there any exemptions? | Yes, certain payrolls are exempted, including foreign insurance companies, adjusters, agents, and office support staff. Wages for domestic service and some construction work are also exempt. |
| What is the tax used for? | The tax funds public transportation-related investments and improvements in Oregon. |
| How do you report the tax? | Use Form OQ for quarterly filers or Form OR-STT-A for annual agricultural filers. You must also file Form OR-STT-2 and report the tax on each employee's Form W-2. |
| When are the forms due? | Quarterly filers have specific due dates, while annual filers must submit forms by January 31. |
| Are there penalties for non-compliance? | Yes, failing to file and pay the tax can result in penalties and interest, up to $250 per employee per tax period. |
| Is there a separate local transit tax? | Yes, local transit taxes are employer taxes paid on employee wages if the business is located in a defined transportation district. |
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What You'll Learn
Oregon transit tax: what is it?
The Oregon Transit Tax is a state-specific tax that applies to all businesses with employees working or living in the state of Oregon. It is a payroll tax that employers withhold from employee wages—0.10% (or $1 per $1,000) of each employee's gross pay. This applies to both Oregon residents and non-residents who perform services in Oregon. Even if an employee is exempt from federal income tax withholding, they are not exempt from the Oregon Transit Tax.
The Oregon Transit Tax is separate from Oregon district transit taxes. While the statewide tax is withheld from employee wages, the local district taxes are paid by employers on top of withholding the statewide tax. These district taxes are based on the location of the business or property and whether that location falls within the TriMet District Boundary. To find out if a business or property is located within the TriMet District Boundary, check the interactive map or refer to the list of ZIP codes or the boundary map.
The Oregon Transit Tax goes to the Statewide Transportation Improvement Fund, which covers public transportation-related investments and improvements. Revenue from the tax will be used to expand public transportation throughout Oregon.
To report the collected tax, employers must file an Oregon transit tax form and a detail report, which can be filed electronically or by paper. If you are a quarterly filer, you must report the tax on Form OQ, Oregon Quarterly Tax Report. If you are an annual agricultural filer, report the tax using Form OR-STT-A, Oregon Annual Statewide Transit Tax Withholding Return. In addition, you must also file Form OR-STT-2, Statewide Transit Tax Employee Detail Report, which lists employee names, wages, and withheld transit tax. The withheld transit tax must also be reported on each employee’s Form W-2, Wage and Tax Statement, in Box 14, Other.
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Who pays the Oregon transit tax?
The Oregon transit tax is a statewide payroll tax that employers withhold from employee wages. Employers in Oregon must withhold 0.10% from each employee's gross pay, including Oregon residents and non-residents who perform services in Oregon. Employees are not exempt from the statewide transit tax withholding, even if they are exempt from federal income tax withholding. As an employer, you are only responsible for withholding, reporting, and remitting withheld taxes to the state government. You do not pay the tax yourself. The withheld funds are remitted to the Statewide Transportation Improvement Fund to cover public transportation-related investments and improvements.
In addition to the statewide tax, some employers must also handle local transit taxes. Unlike the statewide tax, local transit taxes are employer taxes, meaning they are paid by the employer instead of being withheld from employee wages. Local transit taxes are only applicable if the employer is located in a defined transportation district. The Oregon Department of Revenue administers the TriMet and Lane County transit taxes, while Canby, Sandy, South Clackamas, and Wilsonville districts/cities handle their own taxes.
To report the collected statewide transit tax, employers must file an Oregon transit tax form and a detailed report. This can be done electronically or through paper returns. Quarterly filers must use Form OQ, while annual agricultural filers use Form OR-STT-A. Failure to file and pay the statewide transit tax can result in penalties and interest, as well as owing $250 per employee, up to $25,000 per tax period.
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How to withhold the tax from employee wages
As an employer in Oregon, you must withhold state personal income taxes from your employees' wages. The state income tax is levied at a progressive rate, and payroll tax filings are due quarterly. The rate schedule for the personal income tax differs for those who file jointly with a partner, qualified widows or widowers, or as heads of households, and for part-year Oregon residents or non-residents who work in Oregon. Flat taxes range from $192 to $21,305, and taxes on excess income range from 4.75% to 9.9%. You can consult Oregon's individual income tax guide, Publication OR-17, to learn how to determine and calculate an individual's income tax rate and withholdings.
In addition to the statewide income tax, employers in Oregon must also withhold the Oregon transit tax from employee wages. This is a separate tax from any local district transit taxes. The Oregon transit tax is a payroll tax that employers withhold from employee gross pay at a rate of 0.10% (or $1 per $1,000). Employers must withhold this tax from Oregon residents and non-residents who perform services in Oregon. If an employee is an Oregon resident but the business is not based in Oregon, you can withhold the tax as a courtesy.
Additionally, employers in the TriMet district pay a transit tax rate of 0.8137% of employee wages, and employers in the Lane Transit District pay 0.79%.
Employers in Oregon must also withhold taxes for unemployment insurance, workers' compensation, and paid leave. For example, under the new paid leave program implemented in September 2023, employers with 25 or more employees must contribute 1% of gross wages up to $132,900, with employers withholding 40% of that contribution and employees paying the remaining 60%. Small businesses with fewer than 25 employees can make optional contributions.
Furthermore, employers must withhold the Multnomah County PFA personal income tax from employees who work within Multnomah County and earn $200,000 or more during the calendar year. Income above $200,000 is withheld at a rate of 1.5%, and income above $400,000 is withheld at a rate of 3%.
Finally, employers must also be aware of local tax requirements. For example, the Metro Supporting Housing Services (SHS) and Multnomah County Preschool For All (PFA) withholding tax programs require employers to file quarterly withholding returns and annual withholding reconciliation returns with the City of Portland's Revenue Division.
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How to report the tax
As an employer in Oregon, you are responsible for withholding, reporting, and remitting the Oregon transit tax from employee wages to the state government. However, you do not pay the tax yourself.
The Oregon transit tax is reported and remitted by filing an Oregon transit tax form and a detailed report. You can file an electronic or paper return and report. If you are a quarterly filer, you must report the tax on Form OQ, Oregon Quarterly Tax Report. If you are an annual agricultural filer, report the tax using Form OR-STT-A, Oregon Annual Statewide Transit Tax Withholding Return.
For the purposes of the transit district payroll taxes, certain payrolls are exempted from taxation. These include foreign insurance companies, their adjusters, agents, and office support staff. However, this exemption does not extend to domestic insurers, healthcare contractors, and motorist service clubs. Additionally, charitable and other nonprofit institutions (except hospitals) are exempt from transit payroll taxes.
The tax rate for the Oregon transit tax increased to 0.8237% of the wages paid by an employer and the net earnings from self-employment for services performed within the TriMet District boundary, effective January 1, 2025. Employers should apply the new rate when reporting wages for the first quarter of 2025. Self-employed individuals should use the new rate when first reporting earnings for 2025. The Mass-Transit (TriMet) Tax is paid to the Oregon Department of Revenue, and businesses will need to file using the EIN assigned by the IRS.
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Exemptions and exceptions
For the Oregon Transit Tax, the employer is responsible for withholding, reporting, and remitting withheld taxes to the state government. However, they are not required to pay the tax themselves. The Oregon Transit Tax applies to Oregon residents and non-residents who perform services in Oregon. Even if an employee is exempt from federal income tax withholding, they are not exempt from the Oregon Transit Tax withholding.
There are some exemptions and exceptions to the Oregon Transit Tax:
- Charitable and other non-profit institutions (except hospitals): Internal Revenue Code Section 501(c)(3) institutions are exempt from transit payroll taxes. Hospitals are defined as permanent facilities or organizations with inpatient beds and medical services, including physician and nursing services, for diagnosis, treatment, and surgical procedures for ill, injured, or mentally ill patients.
- Foreign insurance companies: All foreign insurance companies, their adjusters, agents, and office support staff are specifically exempted by ORS 731.840. This exemption does not include domestic insurers, healthcare contractors, or motorist service clubs.
- Remuneration not subject to withholding tax: As per ORS 267.380, remuneration that is not subject to withholding under ORS Chapter 316 (Personal Income Tax) is also exempt from the transit payroll tax.
- Domestic service wages: All wages paid for domestic services described in 316.162 are exempt from withholding and transit payroll tax.
- Low-income employees: If an employer can demonstrate that an individual employee's wages will be $300 or less in a calendar year, they may be exempt from paying the transit tax for that employee.
- Labor outside the employer's trade: According to ORS 267.380, labor that is not in the course of the employer's trade or business is exempt from the transit tax. However, this does not include substantial labor, such as the construction of a private home by the homeowner who is also the employer.
- Local transit tax exemptions: The Oregon Transit Tax is a statewide tax, and some employers may also need to handle local transit taxes for specific districts. These local transit taxes are employer taxes, and employers in those districts pay them directly instead of withholding them from employee wages.
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Frequently asked questions
The Oregon transit tax is a statewide payroll tax that employers withhold from employee wages. It is separate from Oregon district transit taxes.
The tax is one-tenth of one percent (0.10% or 0.001), or $1 per $1,000.
If you are a quarterly filer, you must report the tax on Form OQ, Oregon Quarterly Tax Report. If you are an annual agricultural filer, use Form OR-STT-A, Oregon Annual Statewide Transit Tax Withholding Return. You must also file Form OR-STT-2, Statewide Transit Tax Employee Detail Report, listing employee names, wages, and withheld transit tax.
