Oregon Withholding Tax: Rates, Filing, and Recordkeeping

Oregon withholding tax is the state income tax an employer must deduct from each employee’s paycheck and pay to the Oregon Department of Revenue, using a graduated rate structure that runs from 4.75% up to 9.9%. Every business that pays wages for work performed in Oregon has to withhold, whether the business is based in the state or not, and the same quarterly form that reports the withholding also captures several other payroll obligations tied to Oregon employment.

Who Has to Withhold

Oregon defines “employer” broadly. Anyone who controls how another person’s work is performed, or who has the duty to handle payroll tax obligations for an organization, is an employer for withholding purposes.¹ Every employer must deduct and retain state income tax from wages at the time of payment.²

Residency changes what’s taxable. Oregon residents owe state tax on all wages, no matter where the work happens. Non-residents owe tax only on wages earned for work actually performed inside Oregon. If a non-resident splits time between Oregon and another state, only the Oregon-earned portion is subject to withholding.³

Out-of-state businesses are not exempt. An employee working from an Oregon home office, or any physical presence in the state, creates a nexus that triggers the withholding obligation. An employer who fails to withhold the required amount remains personally liable for the full tax that should have been deducted,³ and the Department of Revenue can issue a distraint warrant to collect delinquent amounts along with penalties, interest, and collection charges.⁴

One boundary worth naming: withholding rules do not apply to payments made to independent contractors. Misclassifying a worker is one of the most expensive payroll mistakes an employer can make, because it can trigger liability for all the taxes that should have been withheld, plus penalties and interest going back years. Oregon courts use a simplified “right to control” test looking at whether the business controls how the work is done, how the worker is paid, who furnishes equipment, and whether the business can terminate the relationship at will.⁵ The more control the business exercises, the more likely the worker is an employee.

How Much to Withhold

Oregon’s withholding formulas apply the state’s graduated rates to a “base wage.” Base wage is gross pay, minus federal tax withheld (capped at $8,750 per year), minus the Oregon standard deduction. For a single filer with fewer than three allowances the standard deduction is $2,910; for a married filer, or a single filer claiming three or more allowances, it is $5,820.⁶

The 2026 brackets for a single filer with fewer than three allowances are:

4.75% on the first $4,550 of base wages
6.75% on base wages from $4,550 to $11,400
8.75% on base wages from $11,400 to $125,000
9.9% on base wages above $125,000

Married filers reach the top bracket at $250,000 in base wages rather than $125,000. Above $100,000 for single filers or $200,000 for married filers, the formula zeroes out withholding allowances regardless of what the employee claimed on their form.⁶

Form OR-W-4

Every employee should complete a Form OR-W-4 so you can apply the right filing status and allowances. It is a separate form from the federal W-4 and uses Oregon’s own allowance system. If an employee never submits an OR-W-4 and has no pre-2020 federal W-4 on file, you must default to withholding a flat 8% of wages.⁷

Employees who provide false information on Form OR-W-4 face a $500 penalty if the Department of Revenue determines there was no reasonable basis for the instructions they gave.⁷ The department can also ask you to submit a copy of any employee’s OR-W-4 for review.⁸

Bonuses and Other Supplemental Wages

For bonuses, overtime, commissions, and other supplemental payments made at a different time than the regular payday, you can use a flat 8% rate instead of running the payment through the bracket formula.⁹

Register, File, and Pay

Before paying any wages, you need a Business Identification Number (BIN) from the Oregon Department of Revenue. You can register online through Revenue Online or by mailing a Combined Employer’s Registration form.¹⁰ The BIN tracks every Oregon payroll tax filing and payment you make.

Oregon consolidates most employer payroll obligations into a single quarterly report. Form OQ (Oregon Quarterly Tax Report) covers state income tax withholding, unemployment insurance, statewide transit tax, Paid Leave Oregon contributions, Workers’ Benefit Fund assessments, and any local transit district taxes. Form OQ is filed through Frances Online at frances.oregon.gov/employer, and paper filing is available.¹¹

The 2026 quarterly due dates are:

Q1 (January–March): April 30, 2026
Q2 (April–June): July 31, 2026
Q3 (July–September): November 2, 2026
Q4 (October–December): February 1, 2027

You must file Form OQ every quarter your account is active, even if you had no payroll for that period.¹⁰ Employers who make semi-weekly or daily withholding deposits also file Schedule B with Form OQ to document deposit amounts by payroll date.¹¹ If you pay your federal payroll taxes electronically, you must also pay Oregon combined payroll taxes electronically.

Year-End Reconciliation

After the fourth quarter, file Form WR (Oregon Annual Withholding Tax Reconciliation Report) by January 31 of the following year. It reconciles total withholding for the calendar year against the amounts you reported quarterly.¹⁰ W-2 and 1099 data goes to the Department of Revenue separately through the iWire electronic filing portal.¹²

Other Payroll Items on the Same Form

Because Form OQ combines everything, most employers who withhold income tax are also handling several other payroll taxes on the same schedule.

The Statewide Transit Tax is a flat 0.1% of gross wages, withheld from every employee’s pay. It applies to Oregon residents no matter where they work and to non-residents for work performed in Oregon.¹³ A scheduled increase was originally planned for January 1, 2026, but the Department of Revenue paused it while ballot referral signatures are validated, so employers should continue withholding at 0.1%.¹¹ STT is entirely employee-paid, but if you forget to withhold it, you owe the money anyway. Employees whose wages fall below the income tax withholding threshold are still subject to STT; self-employment income is not.

Two transit districts impose employer-paid payroll taxes on wages earned in their boundaries: TriMet in the Portland metro area at 0.8237% for 2026, and Lane Transit District in the Eugene-Springfield area at 0.80%. These come out of the employer’s pocket, not the employee’s, and cover employees working from home inside the district or traveling through it for work.¹⁴

Paid Leave Oregon contributions total 1% of wages in 2026, up to a wage base of $184,500. Employees pay 60% of that; employers averaging 25 or more employees pay the remaining 40%. Employers with fewer than 25 employees are not required to pay the employer share, but their employees still owe the 60% portion.¹⁵¹¹

The Workers’ Benefit Fund is assessed per hour or partial hour worked rather than as a percentage of wages. The 2026 rate is 1.8 cents per hour, with the employer paying at least 0.9 cents.¹⁶

What Happens If You Get It Wrong

Missing a filing or payment deadline triggers a 5% penalty on the unpaid tax.¹⁷ You can avoid it if you pay the full tax plus accrued interest within 30 days of the department’s billing notice.

Interest runs at 8% per year for periods beginning on or after January 1, 2026. If the tax remains unpaid more than 60 days after assessment, an additional 4% annual charge kicks in, bringing the effective rate to 12%. Interest accrues on the tax itself, not on penalties.¹⁸

Withheld tax is held in trust for the state. If you collect it from paychecks but never remit it, the Department of Revenue can issue a distraint warrant for the delinquent amount plus all penalties, interest, and collection charges.⁴ Trust fund taxes that were withheld and not sent to the state are treated as money that was never yours to spend, and that is where a payroll tax problem can become a serious problem for the business owner personally.

Records to Keep

Oregon requires employers to keep payroll compliance records for at least three years.¹⁹ Records documenting state and federal tax deductions carry a longer minimum of five years, and they must be available to the appropriate state agency on request.

1
OregonLaws. Oregon Code 316.162 – Definitions for ORS 316.162 to 316.221
2
OregonLaws. Oregon Code 316.167 – Withholding of Tax Required
3
Legal Information Institute. Oregon Admin Code 150-316-0255 – Withholding by Employers
4
OregonLaws. Oregon Code 316.207 – Liability for Tax; Warrant for Collection
5
Oregon State Legislature. Worker Classification Background Brief
6
Oregon Department of Revenue. 2026 Oregon Withholding Tax Formulas
7
Oregon Department of Revenue. 2026 Form OR-W-4 Instructions
8
Oregon Department of Revenue. Oregon Form OR-W-4 – Oregon Withholding Statement and Exemption Certificate
9
Oregon Department of Revenue. 2026 Oregon Withholding Tax Tables
10
Oregon Department of Revenue. Withholding and Payroll Tax
11
Oregon Department of Revenue. 2026 Oregon Combined Payroll Tax Report Instructions
12
Oregon Department of Revenue. iWire (W2 and 1099 Reporting)
13
Oregon Department of Revenue. Statewide Transit Tax
14
Oregon Department of Revenue. A Guide to TriMet and Lane Transit Payroll Taxes
15
Paid Leave Oregon. Common Questions
16
Oregon Department of Consumer and Business Services. Workers’ Compensation and Workers’ Benefit Fund Rate Notice 2026
17
OregonLaws. Oregon Code 314.400 – Penalty for Failure to File Report or Return or to Pay Tax When Due
18
Oregon Department of Revenue. Penalties and Interest for Personal Income Tax
19
Oregon Public Law. Oregon Administrative Rule 839-026-0050 – Record Retention Requirements