PORTLAND, Ore. (AP) — Federal stimulus payments last year during the COVID pandemic will will generate $112 million in additional Oregon taxes because of a quirk in state tax law and mean many people are on the hook for a higher tax bill.
The Oregonian/OregonLive reports the taxes will affect 877,000 Oregonian taxpayers, about half of all those who received federal stimulus payments in 2020 and early in 2021. They would owe an average of about $130 apiece from just the first stimulus payments last spring; many lower income workers would owe $100 or more.
Lawmakers from both parties say that’s unfair, and the Legislature is examining a fix that would wipe out the higher tax bill. But with the April tax filing date approaching it’s not clear there’s consensus to make a change.
Last March, Congress authorized $1,200 in stimulus checks for adults and an additional $500 for children, with the amount declining for wealthier taxpayers. A second round authorized in December, and paid early in 2021, paid $600 per adult and another $600 per child – again, with the totals declining in more affluent households.
The stimulus payments were structured as a tax rebate, which means they aren’t subject to federal or state income taxes. But Oregon is one of six states that allow taxpayers to deduct a portion of their federal tax payments from their state income taxes.
Most years, the deduction functions as a state tax break. But when the federal government is giving out stimulus payments it reduces the size of that break. A lower federal tax bill means there’s less to deduct from your state taxes.
The Legislative Revenue Office estimated in May that Oregon will collect an additional $103 million this year, and $9 million next year, from taxes generated by those initial stimulus payments. That’s 3.6% of the $3.1 billion in stimulus payments that Oregonians received last spring.
That tax hike won’t hit everyone, though. Low-income Oregonians with no federal tax liability won’t pay more in state taxes, and some high-income residents with large federal tax bills won’t pay, either.
Congress intended the stimulus payments to be tax free, according to U.S. Rep. Peter DeFazio, D-Springfield.
“It is unconscionable to ask those working families who have struggled the most during this crisis to bear the weight of the state’s budget shortfall,” DeFazio wrote in a letter to Gov. Kate Brown and legislative leaders last week. He asked them to relieve Oregonians of those higher taxes.
Oregon State Sen. Dick Anderson, R-Lincoln City, plans to introduce a bill to protect Oregonians’ stimulus checks from state tax implications.