What is Happening to the Deduction for Contributions made
In 2019 Oregon legislators passed HB 2164 changing the deduction for contributions made to the Oregon Savings Plan to a state tax credit. Beginning January 1, 2020, Oregon taxpayers will be eligible to receive an Oregon state tax credit of up to $300 for joint filers and up to $150 for single filers. Once again, Oregon is unique in that it is the first state in the nation to offer this type of refundable credit for contributions to a college savings plan.
The amount of the credit depends on a taxpayer’s Adjusted Gross Income (AGI). Please see the chart below for specifics.
|Adjusted Gross Income (AGI) of the contributor||Percentage of Contributions eligible for single filer||Contribution needed to maximize $150 tax credit for single filer||Contribution needed to maximize $300 tax credit for joint filer|
|Less than $30k||100%||$150 contribution||$300 contribution|
|$30,001 – $70k||50%||$300 contribution||$600 contribution|
|$70,001 – $100k||25%||$600 contribution||$1,200 contribution|
|$100,001 – $250k||10%||$1,500 contribution||$3,000 contribution|
|More than $250k||5%||$3,000 contribution||$6,000 contribution|
If you want to take advantage of the deduction available for 2019, you must make contributions by December 31, 2019. The deduction is limited to $4,865 for joint filers or $2,435 for single filers. Some of you might be wondering – what if I have unused deductions from 2019, or from a previous year? Under the new law, contributions made prior to December 31, 2019 can be carried forward for up to four years. On the Oregon College Savings Plan website, the following example is given:
“If a couple contributed $15,000 to their son’s Oregon College Savings Plan account in 2019, they may subtract a maximum of $4,865 (because they file jointly) on their 2019 Oregon taxes. They can then carry forward the remaining $10,135 balance of that contribution for up to four years. The new tax credit would be in addition to any carried forward deductions.”
* One important rule to remember is the deduction may only be taken if the Oregon College Savings Plan account balance is greater than the deduction amount at the end of the tax year in which the deduction is being made.
For a very short period of time, it is possible to take advantage of the deduction and state tax credit. Here’s a quick example of what it might look like if a taxpayer wanted to maximize their contributions and state tax credits over the next 5 years (including 2019). Note, this chart is for married taxpayers making more than $250,000 per year. Taxpayers with income less than $250,000 will be able to contribute less than the $6,000 to receive the entire $300 state tax credit and may not be subject to the 9.9% Oregon tax rate.
Oregon 529 Plan – Maximizing Tax Deduction & Tax Credit
|Yr 1||Yr 2||Yr 3||Yr 4||Total|
|Contribution (Pre 2020)||$24,325.00||$24,325.00|
|Contribution (Post 2019)||$6,000.00||$6,000.00||$6,000.00||$6,000.00||$24,000.00|
|Oregon Tax Deduction||$4,865.00||$4,865.00||$4,865.00||$4,865.00||$4,865.00|
|Oregon Tax Credit||$300.00||$300.00||$300.00||$300.00||$1,200.00|
|Oregon Tax Rate||9.9%||9.9%||9.9%||9.9%||9.9%|
|Oregon Tax Savings||$481.64||$481.64||$481.64||$481.64||$481.64||$2,408.18|
|Total OR Tax Savings||$481.64||$781.64||$781.64||$781.64||$781.64||$3,608.18|
Total Invested: $48,325.00
Total OR Tax Savings: $3,608.18
If you have any additional questions, please contact your tax advisor or BC+S.