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Taxes shouldn't go up from stimulus

Oregon taxpayers may be in for a surprise when they file their income tax returns this year: The federal stimulus payments they received as part of COVID-19 relief efforts could increase their state tax bill. Legislators are working on a fix for this, but state law on tax changes means it may not happen before April 15. That’s unacceptable.

Just to be clear, the IRS does not tax stimulus payments. And no one in state government deliberately set out to tax them. But the way the federal government issued the checks and a quirk in Oregon’s tax law means some taxpayers will pay more because of the stimulus.

Oregon is one of six states that allows filers to deduct a portion of federal taxes paid from their state taxes. The stimulus checks were issued as a tax rebate, making them exempt from federal and state income taxes. But because the rebate reduced the federal tax bill, Oregonians have less to deduct, effectively increasing the amount they owe to the state.

Not all taxpayers will be affected equally. Low-income residents who owe no federal taxes won’t be affected. High-income residents with large federal tax bills won’t pay more, either.

Those in the middle — more than 800,000 Oregonians — will see their state tax bills increase by varying amounts depending on their circumstances. It’s income taxes, so it’s complicated, but the Oregon Department of Revenue says taxpayers will owe an average of $130 each from the stimulus payments sent out last spring.

It doesn’t make sense for a payment intended to ease the blow of the pandemic to cost the recipients money. But fixing the problem may be more easily said than done.

State Sen. Dick Anderson, R-Lincoln City, is introducing a bill to eliminate any extra tax liability from stimulus payments. But state law says tax changes cannot take effect until 90 days after the legislative session ends, which happens in June this year, long after the April 15 tax deadline.

Lawmakers should figure out a way to hold Oregonians harmless for stimulus checks they received in 2020. It’s a matter of principle.

While lawmakers are at it, they should also consider giving a break to state residents and businesses who may be having trouble making estimated or quarterly tax payments as a result of COVID-19 restrictions on their business operations or their employment. The Legislature should let those taxpayers have more time to make those payments.

If state law is getting in the way, then change it.