Living in Oregon, Working in Washington

Living in Oregon but working in Washington? Be very, very careful! There’s significant potential for a tax-related disaster.

The problem is this: the State of Washington doesn’t have a personal income tax, and in general Washington businesses are not required to withhold any state income tax from their employees’ paychecks. However, residents of Oregon are required to pay income tax on their entire annual income, wherever they may have earned it. If you live in Oregon and work in Washington, you still owe Oregon income tax on your full salary.

So, if you make a lot of money in Washington, and your WA employer hasn’t been taking Oregon taxes out of your paycheck, then you’re going to have a hefty tax bill come April 15th. This can be very, very difficult to deal with if you haven’t planned for it. The worst news I’ve ever had to give a client had to do with this issue. A quick example: if you live in Oregon and make $50,000 a year working in Washington, you could end up owing Oregon about $4,500 in income tax on that $50,000 of earnings (or roughly 9%, ignoring all possible deductions).

The solution? Well, some WA employers have a sophisticated enough payroll system that they’re able to withhold Oregon state taxes from your paycheck. If your WA employer offers you this option, then you should take it. The other option is to make estimated tax payments to Oregon throughout the year. Generally, payments are due 4 times a year: mid-April, mid-June, mid-September, and mid-January. I can provide you with payment vouchers based on your estimated annual out-of-state income; all you’d need to do is write a check 4 times a year and mail it in to the Oregon Department of Revenue with one of the vouchers.

And if it helps, I can send you a reminder email two weeks before each of the estimated tax payments are due, just to lessen the likelihood of forgetting…

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