Oregon Payroll Taxes and Withholding Guide (2026)

What Makes Oregon Payroll Different

Federal payroll tax is the same in every state. What changes from one state to the next is the second layer: state income tax withholding, employer unemployment taxes, and any local wage taxes. Oregon is distinctive on two counts. First, its income tax withholding formula subtracts your own federal income tax before the state rate applies, which almost no other state does. Second, it carries a statewide transit tax and, in the Portland area, some of the highest local income taxes in the country.

Because Oregon's state tax starts from taxable wages and strips out the federal tax and a standard deduction, the effective rate on a normal paycheck is well below the 9.9% headline top rate. But the Portland-area local income taxes and the statewide transit tax push Oregon's total wage-tax burden up for higher earners. The federal baseline behind all of this is explained in the how payroll taxes work guide.

Employee Withholding Overview in Oregon

An Oregon employee sees federal taxes, a graduated state tax, the statewide transit tax, and the Paid Leave Oregon contribution, plus the Portland-area local income taxes if they live or work in those districts and earn above the thresholds. There is no employee unemployment line.

The federal lines work identically to any other state. For Social Security, the 2026 wage base is $184,500, after which Social Security stops for the year. Medicare has no cap. What is unique to Oregon is the graduated state formula with its federal tax subtraction, the statewide transit tax on every paycheck, the Paid Leave Oregon contribution, and the Portland-area local income taxes for higher earners in those districts.

How Is Oregon State Income Tax Withheld?

Oregon uses the computer formula in the Department of Revenue publication 150-206-436, Oregon Withholding Tax Formulas. The employer annualizes wages, then subtracts the employee's own annual federal income tax withheld and the standard deduction to get a base wage, applies the graduated schedule, subtracts a per-allowance exemption credit, and divides across pay periods.

The federal income tax subtraction is the unusual part: Oregon lets you subtract your own federal income tax withheld, up to the cap, before the state rate applies. That subtraction phases out for high earners, dropping from the cap to zero across $125,000 to $145,000 of wages for single filers and $250,000 to $290,000 for married filers. The federal Form W-4 sets federal withholding, covered in the W-4 withholding explained guide, while Form OR-W-4 sets your Oregon allowances and any additional amount.

Oregon Withholding (Form OR-W-4)

Form OR-W-4 is Oregon's version of the federal W-4. Since 2020 the federal W-4 no longer uses allowances, so Oregon built the OR-W-4 to set your Oregon allowances, exemptions, and any extra withholding. This matters because the two forms are no longer interchangeable.

What the OR-W-4 Controls

• Allowances: each Oregon allowance is worth a $263 exemption credit for 2026, subtracted after the rate. More allowances lower the withholding.
• Filing status: single or married sets the standard deduction and the rate schedule; you can also elect to withhold at the higher single rate while married.
• Exemption and extra withholding: you can claim exemption if you qualify, or request an extra flat dollar amount per pay period.

If no OR-W-4 is on file, House Bill 2119 requires the employer to withhold a flat 8% of wages until you submit one. For most workers 8% of gross is more than the formula would take, so an unfiled OR-W-4 quietly over-withholds. To see how the formula, the federal subtraction, and a Portland local tax change take-home pay, use the Oregon paycheck calculator.

Oregon Statewide Transit Tax

Separate from the income tax, Oregon imposes a statewide transit tax on the wages of every Oregon employee, and on the Oregon-source wages of nonresidents. The employer withholds it and remits it with the other payroll taxes, and it has no wage cap.

The rate doubled to 0.2% for wages paid on or after January 1, 2026. This statewide transit tax is separate from the TriMet and Lane transit district payroll taxes, which are employer-side taxes and do not appear on the employee's stub. A worker anywhere in Oregon sees the statewide transit line; only employers inside the TriMet or Lane districts pay those district taxes.

Portland-Area Local Income Taxes

This is the layer that defines Oregon payroll for higher earners in the Portland region. Two personal income taxes reach wages above high thresholds, and because they are marginal, they apply only to the income above the threshold. Unlike the state income tax, they are administered by the City of Portland Revenue Division on behalf of Metro and Multnomah County.

The Metro SHS tax applies to people who live or work in the Metro district, which covers the urban parts of Clackamas, Multnomah, and Washington counties. The Multnomah County PFA tax applies to people who live or work in Multnomah County, and it stacks on top of the Metro tax, so a Multnomah County worker over $125,000 pays both. Employers automatically withhold these once an employee's wages exceed $200,000 a year; below that, withholding happens only by employee request, though the tax is still owed on the return. Beginning in tax year 2026 the exemption thresholds are indexed for inflation, so confirm the current figures. The Oregon paycheck calculator adds these lines when you select a Portland-area location.

Paid Leave Oregon

Paid Leave Oregon is a state paid family and medical leave program funded by a payroll contribution shared between employees and employers. It is a real deduction on an Oregon stub, but it runs on its own schedule and is not part of the income tax withholding formula.

For 2026 the total contribution is 1% of gross wages up to $184,500. Employees pay 60% of that, or 0.6% of wages, and large employers (25 or more employees) pay the remaining 0.4%; small employers with fewer than 25 employees do not owe the employer share but still withhold the employee portion. The contribution stops once wages reach the $184,500 cap for the year with a given employer. This is distinct from unemployment insurance, which employees do not pay at all, and from the income tax formula, which does not include the Paid Leave line.

Oregon Reciprocity Agreements

Oregon has no income tax reciprocity with any other state, including neighboring Washington. This surprises many workers in the Portland-Vancouver metro area who commute across the Columbia River.

An Oregon resident is taxed by Oregon on all wages, regardless of where the work is performed. A nonresident who works in Oregon, such as a Washington resident commuting to a Portland job, has Oregon income tax withheld on the Oregon-source wages and files an Oregon nonresident return; because Washington has no income tax, there is no home-state credit to claim in that direction. A worker who lives in Oregon but works in another state that taxes wages generally claims a credit on the Oregon return for tax paid to the other state. There is no form that stops Oregon withholding on Oregon-source wages the way a reciprocity certificate would in a reciprocal-state pair.

Employer Payroll Obligations in Oregon

Oregon employers carry the federal employer taxes plus State Unemployment Insurance through the Oregon Employment Department and the employer share of Paid Leave Oregon. The federal side, covered in the employer payroll tax obligations guide, includes the matching 6.2% Social Security and 1.45% Medicare plus Federal Unemployment Tax (FUTA). There is no employee unemployment contribution to withhold.

The Oregon unemployment taxable wage base is $56,700 per employee for 2026, so the employer unemployment tax stops once an employee's year-to-date wages pass $56,700. The employer's actual UI rate is experience-rated and set annually on the state schedule. Large employers also pay the 0.4% employer share of Paid Leave Oregon, and every employer withholds and remits the statewide transit tax. Employers with workers in the Portland Metro district or Multnomah County register with the City of Portland Revenue Division to withhold the SHS and PFA taxes. Model the combined cost-to-hire with the employer payroll tax calculator.

Oregon Has No Employee Unemployment Deduction

A handful of states, including Pennsylvania and New Jersey, take a small unemployment contribution directly from employee wages. Oregon is not one of them. The entire cost of Oregon unemployment insurance falls on employers through the Oregon Employment Department, so there is no employee unemployment line on an Oregon pay stub.

Do not confuse this with Paid Leave Oregon, which is a separate program that employees do pay into at 0.6% of wages. Unemployment and paid leave are two different taxes: unemployment is employer-only, and paid leave is shared. Oregon also has no traditional state disability insurance deduction. So the mandatory deductions on an Oregon stub are federal taxes, the graduated state income tax, the statewide transit tax, the Paid Leave Oregon contribution, and, in the Portland area above the thresholds, the local income taxes.

Oregon Supplemental Wage Withholding

Supplemental wages are payments outside regular salary: bonuses, commissions, overtime, sales awards, and back pay. Oregon gives employers a flat-rate option for these.

• State method: Oregon allows an 8% flat rate on supplemental wages paid separately from regular pay, per the Oregon Withholding Tax Formulas.
• Transit and local taxes: the statewide transit tax and the Portland-area local income taxes apply to supplemental wages the same as to regular wages.
• Employee unemployment: none, on supplemental wages or regular wages; Paid Leave Oregon still applies up to the wage cap.

Federal income tax withholding on supplemental wages is a separate calculation set by the IRS, and Social Security and Medicare still apply under their own rules. For the federal supplemental math, use the Bonus Tax Calculator.

Oregon Filing and Payment Frequency

Oregon employers report and remit withheld state income tax on a schedule that mirrors their federal deposit schedule, filing the quarterly Oregon combined payroll tax report (Form OQ) and reconciling annually. The Oregon Department of Revenue administers withholding, the statewide transit tax, and, with the Employment Department, the combined payroll report; Paid Leave Oregon and unemployment are reported through the same combined return. The federal deposit schedule is covered separately in the payroll tax deadlines guide.

The Portland Metro SHS and Multnomah County PFA taxes are withheld and remitted through the City of Portland Revenue Division on its own schedule and forms, separate from the state combined return. New employees must be reported to the Oregon new-hire directory within 20 days of the hire date.

How Take-Home Pay Works in Oregon

The calculation sequence runs from gross pay down to net pay. Because Oregon wages exclude pre-tax deductions, the same 401(k) and Section 125 amounts that reduce federal wages also reduce the Oregon income tax, the statewide transit tax, and the Portland-area local taxes.

1. Start with gross wages for the pay period.
2. Subtract federal pre-tax deductions (401(k), Section 125 health premiums) to find taxable wages for federal and Oregon tax.
3. Apply federal income tax withholding using the Form W-4 and IRS Publication 15-T.
4. Compute the Oregon base wage: annual wages minus your federal income tax withheld (capped and phased out) minus the standard deduction; apply the graduated schedule and subtract the allowance credit.
5. Apply the 0.2% statewide transit tax, and, in the Portland area above the thresholds, the Metro SHS and Multnomah PFA taxes.
6. Subtract Social Security (6.2%) and Medicare (1.45%) on FICA wages, and the 0.6% Paid Leave Oregon contribution. The remainder is net pay; there is no employee unemployment line.

To see exact figures for a specific salary, OR-W-4 status, location, and pay frequency, use the Oregon paycheck calculator or the general take-home pay calculator for a full pre-tax benefits stack.

Oregon Payroll Quick Facts (2026)

Frequently Asked Questions