OR Income Tax Connection to Federal Law LEGISLATIVE REVENUE OFFICE 8/29/2018 INTERIM REVENUE COMMITTEES

Transcription

1 OR Income Tax Connection to Federal Law LEGISLATIVE REVENUE OFFICE 8/29/2018 INTERIM REVENUE COMMITTEES

2 Personal Income Tax: Adjusted Gross Income to Oregon Taxable Income Adjusted Gross Income Additions Subtractions Deductions OR Taxable Income Additions & Subtractions Originate in Oregon statute Some required by federal law or OR Constitution Deductions Most originate in federal law with applicability in Oregon due to Oregon s connection to taxable income LRO 8/29/2018 2

3 Personal Income Tax: Adjusted Gross Income (AGI) to Oregon Taxable Income Amount Reported on Tax Returns TY 2014 (Billions) AGI Additions 0.6 Subtractions 10.7 Deductions 15.2 OR Taxable Inc BILLIONS AGI to Oregon Taxable Income TY 2014 FAGI Additions Subtractions Deductions OR Taxable Inc. Page Sources: Oregon DOR Published Tables LRO 8/29/2018 3

4 Oregon Additions Addition Type Percentage of Total TY 2014 Additions TY INTEREST ON STATE/LOCAL BONDS OUTSIDE OREGON 32% Millions Interest on state/local bonds outside Oregon ALL OTHER 68% 200 All other 100 0% 20% 40% 60% 80% 0 Page Sources: Oregon DOR Published Tables Other addition examples: Federal income tax refund following audit/amend Domestic production activities (federal QPAI deduction) Depreciation difference in Oregon LRO 8/29/2018 4

5 Oregon Subtractions Oregon Subtractions TY 2014 INTEREST FROM U.S. BONDS 1% OREGON TAX REFUND 4% FEDERAL PENSION INCOME 9% ALL OTHER SUBTRACTIONS 13% SOCIAL SECURITY 34% Billions Subtractions TY Interest from U.S. Bonds Oregon Tax Refund Federal Pension Income All Other Subtractions Social Security FEDERAL TAX LIABILITY 39% 2 Federal Tax Liability 0% 5% 10% 15% 20% 25% 30% 35% 40% 0 Federal law prohibits Oregon from taxing interest from U.S. bonds and federal pension income Social Security subtraction is in Oregon s Constitution Page Sources: Oregon DOR Published Tables LRO 8/29/2018 5

6 Federal & Oregon Deductions Standard Deduction Amounts: Federal & Oregon -----Federal----- Oregon 2017 (Pre TCJA) TY 2018 TY 2018 Single 6,350 12,000 2,215 Joint 12,700 24,000 4,435 % Itemize 40% 15% 45% Key Relevant Components of TCJA Limited SALT deduction to $10,000 Repealed Pease limitation on itemized deductions Lowered limits for interest on mortgage debt & eliminated home equity deductibility Elimination of certain miscellaneous deductions (e.g. unreimbursed employee expenses, tax preparation fees) Increased limits on deductibility of charitable donations LRO 8/29/2018 6

7 Oregon Standard & Itemized Deductions Deduction Type - TY 2014 Amount # Returns (Billions) Avg. Itemized Deductions 771,552 $12.5 $16,207 Standard Deduction 908,058 $2.6 $2,915 Total 1,679,610 $15.2 $9,021 Deduction Type # of Returns TY 2014 ITEMIZED DEDUCTIONS STANDARD DEDUCTION 46% 54% $16 $14 $12 $10 $8 $6 $4 $2 $0 Deductions TY 2014 (Billions) $2.6 $12.5 Standard Deduction (Avg. $2,915) Itemized Deductions (Avg. $16,207) ITEMIZED DEDUCTIONS STANDARD DEDUCTION Amt. Deducted by Type TY % 83% Page Sources: Oregon DOR Published Tables LRO 8/29/2018 7

8 Oregon Itemized Deductions Oregon Itemized Deductions TY Deductions TY 2014 OTHER DEDUCTIONS 3% 12 Other Deductions NET LIMITED MISCELLANEOUS 6% 10 Net Limited Miscellaneous MEDICAL EXPENSES PROPERTY TAXES 12% 19% Billions 8 6 Medical Expenses Property Taxes CHARITABLE CONTRIBUTIONS 21% HOME MORTGAGE INTEREST 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% Charitable Contributions Home Mortgage Interest Page Sources: Oregon DOR Published Tables LRO 8/29/2018 8

9 Oregon Deductions Revenue Impacts $1,096 Est. TE Report Rev. Impacts Biennium ($ Millions) Key Concepts Itemized deductions heavily weighted TCJA limited the number of federal returns expected to itemize impact on underlying deduction policy $471 $424 $231 Interaction of itemized deductions stacking HOME MORTGAGE INTEREST PROPERTY TAXES CHARITABLE CONTRIBUTIONS MEDICAL EXPENSES Page Sources: Oregon Tax Expenditure Report LRO 8/29/2018 9

10 Examples Interaction with Standard Deduction: Federal & Oregon Federal OR Federal OR AGI 35,000 35, , ,000 Standard Ded. 24,000 4,435 24,000 4,435 Difference N/A 6,465 1,000 15,065 Itemized Deds. 12,125 10,900 25,000 19,500 HMI 6,800 6,800 12,000 12,000 State Inc. Tax 1,225 N/A 5,500 N/A Prop. Taxes 3,700 3,700 5,000 5,000 Charitable ,500 2,500 Deduction Type Standard Itemize Itemize Itemize Note: Example is of jointly filed return Example of Deduction "Stacking" Ex. 1 Ex.2 AGI 50,000 50,000 Standard Ded. 4,435 4,435 Difference 4,365 N/A Itemized Deds. 8,800 3,800 HMI 5,000 N/A Prop. Taxes 3,500 3,500 Charitable Deduction Type Itemize Standard Note: Example is of jointly filed return LRO 8/29/

11 Summary Adjusted Gross Income Additions Subtractions Deductions OR Taxable Income Changing connection point from taxable income to AGI initially increases potential income subject to taxation by moving connection point upstream Necessity of Oregon additions would change Subtractions largely remain unchanged Policy decision on how/if to connect to federal deductions Most of the increase in potential income subject to taxation is derived from a few itemized deductions & standard deduction Interaction with federal deduction policy post TCJA LRO 8/29/