If you retire in Oregon you may be subject to state income tax on your income, but you may be able to exclude certain types of retirement income or claim a retirement income credit if your income is below a certain amount. State income tax rates in Oregon start at 5% and progressively increase up to 11% on taxable income of over $250,000 ($500,000 on a joint return). According to the Oregon Department of Revenue, starting in 2012, the maximum rate will be 9.9% on taxable income over $125,000 ($250,000).
Interest and dividends
Your Oregon state income tax return starts with your federal adjusted gross income. Then you make certain additions and subtractions to determine your Oregon taxable income. One of the items you need to add is the interest or dividends you received from state or local governments outside Oregon. This income is not subject to federal income tax but is taxable in Oregon. Interest from Oregon government bonds is not taxable in Oregon.
On your Oregon return you can subtract interest and dividends from the U.S. government such as U.S. Series EE, I, or HH bonds and Treasury bills or notes that were included in taxable income on your federal tax return.
On your Oregon return you can subtract any Social Security or tier 1 railroad retirement benefits you had to include on your federal return.
If you receive federal pension income, including military retirement pay, you can subtract all or a portion of that pension income on your Oregon return. If all your service for the federal government was before October 1, 1991, you can subtract all your federal pension income on your Oregon return. If your federal service was before and after October 1, 1991, you can subtract a portion of the federal pension income you reported on your federal return representing the proportional number of months of federal service you had before October 1, 1991.
Other types of retirement income are subject to Oregon state income tax. But you can subtract payments you receive from an IRA, Keogh plan, Simplified Employee Pension plan and certain government pension plans if your contributions to the plan were taxed by another state. For example, if you contributed more than the maximum amount deductible in another state, that excess amount was subject to tax in that state. You can subtract that excess amount from the retirement income you report on your Oregon return.
Retirement income credit
If you are 62 or older and your household income is less than $22,500 ($45,000 if filing jointly) and your Social Security or tier 1 railroad retirement benefits are less than $7,500 ($15,000 if filing jointly) you could qualify for a retirement income credit. The credit is up to 9 percent of your retirement income. For purposes of this credit, retirement income includes U.S. government and military pensions, state or local government pensions, employee pensions, IRAs, 401(k) plans, deferred compensation plans, and employee annuity plans.
Form 40 – Oregon Individual Income Tax Return – Oregon Department of Revenue
Oregon Income Tax – Oregon Department of Revenue
Personal Income Tax Changes – Oregon Department of Revenue
Previously taxed employee retirement plans – Oregon Department of Revenue