Important Updates to Multnomah County’s Preschool for All Income Tax

Multnomah County has adopted amendments to the Preschool for All income tax program aimed to improve tax administration and compliance. Some of these key changes include:

• Electronic Filing: The County wants to authorize the Tax Administrator to require electronic filing of tax returns through administrative rules.
• Pass-Through Income Deduction Clarity: The language regarding the deduction of pass-through income will be clarified to make it easier for taxpayers to understand and apply.
• Penalties for Incorrect W-2s: Employers who fail to file accurate and complete W-2 forms that match their annual withholding reconciliations will face penalties. Multnomah County is authorized to assesses a penalty of $50 for each missing or incomplete Form W-2

The Preschool for All income tax program was started in 2021 to fund universal, tuition free, voluntary, and high-quality preschool education for every three- and four-year-olds residing within Multnomah County.

Who Pays the Preschool for All Income Tax?

• Tax Rate: This program is funded by a surcharge on personal income tax for high earners in Multnomah County.
  • Single filers:
    • 1.5% on income exceeding $125,000
    • 3% on income exceeding $250,000 (increases to 3.8% in 2026)
  • Joint filers:
    • 1.5% on income exceeding $200,000
    • 3% on income exceeding $400,000 (increases to 3.8% in 2026)

Who is Subject to the Tax?

• • All income earned within Multnomah County by residents is taxable.
  • Non-residents only pay tax on income they earn while physically working in Multnomah County. (e.g., 50% of income for someone working remotely half the time).
• Income Tax Withholding:
  • Employers are required to withhold tax for employees earning over $200,000 annually unless they opt out.
  • Employees below the threshold or with specific tax situations can choose to opt in or out of withholding.
  • Withholding rates are applied to supplemental wages based on income brackets.

Withholding on Supplemental Wages

• If an employee already has Multnomah County income tax withheld from their regular paycheck, the following withholding rates will apply to supplemental payments based on their income bracket:
  • 1.5% for wages between $200,000 and $400,000
  • 3% for wages exceeding $400,000
• If the employee doesn’t have Multnomah County withholding set up, no withholding is required on supplemental payments.

Employer Reporting Requirements

• Employers must file quarterly Form WPFA-QR to report withheld income tax.
• They must use Form WIT-V for any withholding tax payments made by check (not included in the quarterly return).

Pass-through Deductions

• General Rule: Taxpayers can deduct their share of taxable income from a pass-through entity, reported on the County’s business income tax return.
• Conditions for Deduction:
  • The pass-through entity must file a County business income tax return for the year.
  • The income reported on the return cannot be zero or a net operating loss.
  • The deduction cannot be more than the taxpayer’s share of income reported on the return.

Penalties for Late Withholding Tax Payment

Beginning January 1, 2022, failure to remit withheld taxes on time will result in the following penalties:

• 5% for payments received within four months of the due date
• An additional 20% for payments received more than four months late
• 100% penalty for failure to remit for three consecutive tax years

For detailed instructions and forms, visit the Multnomah County website – https://www.multco.us/finance/multnomah-county-preschool-all-personal-income-tax

If you need further assistance, contact your KBF professional or get in touch with our team here – https://kbfcpa.com/people/