Most of us don’t have to worry too much about paying our taxes throughout the year because our state and federal taxes are taken out of our paycheck or retirement income before we even receive it. This “pay-as-you-go” withholding process takes place regardless of whether we get paid every week, or every two weeks, or every month. When it comes to the end of the year and we prepare our tax returns, we report our taxable income and figure out our correct tax liability for the year. Then when we compare our tax liability to the total amount that has been withheld by our employers or from our retirement funds during the year, we find out whether we will receive a refund or whether we owe further amounts to the IRS or state tax agency. In other words, we get a refund if too much tax was withheld, and we have a balance due if the withholdings are too little.
But not all taxpayers have enough, or even any, taxes withheld on their behalf while they earn their income, which means that they have to make other arrangements to avoid being faced with a potentially enormous tax bill at the end of the year. These folks must, therefore, make estimated tax payments during the year if they want to avoid that very unpleasant surprise we just mentioned.
Why Would Some People Have to Pay Estimated Taxes?
This is because tax is not normally withheld from some types of income before you receive it. This includes things like dividend income, rental income, interest income, capital gains, and even income from cryptocurrency. And the same applies to some types of taxpayers, such as small business owners, independent contractors, freelancers, and other self-employed taxpayers, because taxes are normally not withheld from the payments these folks receive for their work. There needs to be some organized method for these taxes to be collected, and this is where the “estimated tax” system comes into play. Under this system, the taxpayer makes up to four tax payments throughout the year, instead of the regular payments that would be made at each pay period by their payroll department if he or she were an employee.
In effect, it’s as if my local, self-employed landscaper, Kevin, receives a paycheck at the end of every quarter of the year instead of receiving payment after each job is completed. At the end of each quarter, he estimates the amount of taxes he owes for that quarter and sends a check to the IRS or state tax agency. Just like the rest of us, when Kevin completes his tax return at the end of the year, he will find out whether he owes more tax or if he’s due a refund.
Many individual states require the payment of estimated taxes by people like Kevin, although the rules tend to differ slightly from one state to the next. Let’s now look at the rules that apply to our buddy Kev if he works in Oregon.
Oregon Estimated Tax Rules for Residents and Nonresidents
General rule
Regardless of whether they are an Oregon resident, taxpayers who are required to file an Oregon tax return and expect to owe more than $1,000 after taking into consideration any taxes already withheld and allowable credits, must either make estimated tax payments or have additional income tax withheld throughout the year from their wages or other income. Taxpayers who expect to owe less than $1,000 in taxes after taking all credits into account may also make estimated tax payments if they choose to do so, but they will not be penalized if they don’t make such payments.
Exceptions
Please note that some exceptions apply to the general rule we have just discussed.
- An exception to the obligation to make estimated tax payments applies to taxpayers who estimate that their tax withholding for the current year will be at least:
- 90% of their tax for the current year, after all credits; or
- 100% of their tax after all credits shown on their tax return from last year; or
- 90% of the tax on their annualized income for the current year.
- Another exception applies to farmers and commercial fishermen who receive at least 2/3rds of their estimated Oregon gross income from farming or fishing. No estimated tax payment is required by these taxpayers if their gross income from farming or fishing met the 2/3rds test last year, or they expect their income in the current year will meet the 2/3rds test.
Due Dates
Oregon estimated tax installment payments are normally due on the following dates, unless the date falls on a weekend or holiday. In that case, the payment will be due on the next business day:
- April 15th;
- June 15th;
- September 15th; and
- January 15th of the following year.
Taxpayers who use a fiscal year for accounting purposes should adjust the above dates accordingly, and thus their due dates for payment will be the 15th day of the 4th, 6th, 9th month of their fiscal year, as well as the 15th day of the first month of their next fiscal year.
Instead of paying in four installments during the year, taxpayers also have the option of paying the full amount of their estimated tax for the current year on the due date of their first installment.
Taxpayers can use the estimated payment worksheet that is available in the
OR Estimate document on the Oregon Department of Revenue website to calculate their estimated tax liability and how many payments they should make.
What if I Don’t Pay on Time?
It is important to note that interest may be charged to taxpayers who do not meet either of the exceptions above and fail to make their required estimated payments. The same applies if payments are underpaid or paid late in any quarter, even if the taxpayer is due to receive a refund when they file their income tax return.
How to Pay
Payments may be made electronically through the
Revenue Online portal of the Oregon Department of Revenue, or via mail by using
Form OR-40-V. Payments can also be made in person at any of the DOR’s regional offices.
For more information, please refer to
Oregon Estimated Income Tax Instructions.