Oregon vs. California Income Tax: A Key Comparison

Oregon and California have distinct state income tax systems that influence an individual’s finances. The differences in how each state defines taxable income, applies tax rates, and offers credits are important for personal financial planning for those living in or considering a move to either state. These variations shape the take-home pay and overall tax burden for residents.

Comparing Taxable Income Calculations

In both Oregon and California, calculating state income tax begins with the federal Adjusted Gross Income (AGI). From there, each state applies its own set of rules for subtractions and deductions to determine state-specific taxable income. These adjustments can lead to different tax bases between the two states.

A primary distinction is the standard deduction amount. For the 2024 tax year, California’s standard deduction is $5,540 for single filers and married individuals filing separately, and $11,080 for joint filers, heads of household, or qualifying widow(er)s. Oregon’s standard deduction is $2,745 for single filers and those married filing separately, $5,495 for joint filers, and $4,420 for heads of household. Oregon also provides an additional standard deduction for taxpayers who are over 65 or blind.

The states also differ on itemized deductions. A key difference involves the federal State and Local Tax (SALT) deduction, capped at $10,000. California does not allow a deduction for state and local income taxes on its return. In contrast, Oregon allows a deduction for federal income taxes paid, a benefit not available in California.

For other itemized deductions, such as medical expenses, both states follow federal guidelines. The value of itemizing depends on whether total deductions exceed the state’s standard deduction. Since California’s standard deduction is much higher than Oregon’s, more Oregon taxpayers may find it beneficial to itemize.

State Income Tax Rates and Brackets

Both Oregon and California use a progressive tax system, where tax rates increase with income, but their structures differ. California is known for having one of the highest top marginal tax rates in the nation. Oregon’s system is more compressed, meaning taxpayers reach the highest rate at a lower income level.

For the 2024 tax year, California has nine income tax rates ranging from 1% to 12.3%. An additional 1% mental health services tax on income over $1 million brings the effective top rate to 13.3%. The highest rates affect only the top earners.

Oregon’s system has four tax brackets for 2024 with rates of 4.75%, 6.75%, 8.75%, and 9.9%. The top rate of 9.9% applies to taxable income over $125,000 for single filers and over $250,000 for joint filers.

A unique feature of Oregon’s tax system is the “kicker” rebate, which has no parallel in California. This surplus is returned to taxpayers when state revenue exceeds forecasts by at least 2% over a two-year budget period. The kicker is claimed as a credit based on the prior year’s tax liability. There is no kicker available for the 2024 tax return.

Key Tax Credits in Each State

Taxpayers in both states can reduce their final bill through tax credits, which decrease tax liability on a dollar-for-dollar basis. Both states offer credits to support working families, renters, and those with child care expenses, but the specifics and eligibility differ.

California offers several credits, including the Child and Dependent Care Expenses Credit, which applies to a percentage of care costs. The state also has a nonrefundable Renter’s Credit of $60 for single filers with an income of $52,421 or less, and $120 for joint filers with an income of $104,842 or less. Additionally, the California Earned Income Tax Credit (CalEITC) is a refundable credit for low-to-moderate-income workers, with a maximum credit of $3,644 for 2024.

Oregon provides its own Earned Income Credit (EIC), calculated as a percentage of the federal EIC. The state also offers the Working Family Household and Dependent Care Credit to help with care expenses. Additionally, Oregon has education-related credits for contributions to an Oregon College Savings Plan or an ABLE account.

Treatment of Retirement and Investment Income

The taxation of retirement and investment income differs between the states, though both fully exempt Social Security benefits from state income tax. This means retirees who rely only on Social Security owe no state income tax in either Oregon or California.

A key distinction is the treatment of other retirement income. California taxes distributions from pensions, 401(k)s, and IRAs as ordinary income, subject to its standard progressive tax rates.

Oregon also taxes 401(k) and IRA distributions at its regular rates but offers a limited credit for certain pension income. A key difference is Oregon’s subtraction for a portion of federal pension income from service before October 1991. For long-term capital gains, California taxes them as ordinary income, while Oregon allows a subtraction related to federal taxes paid on those gains.

Other Significant State Payroll Taxes

Beyond state income tax, both California and Oregon levy other mandatory payroll taxes that affect an employee’s net pay. These taxes are withheld from paychecks to fund specific state programs.

California employees are subject to the State Disability Insurance (SDI) tax, which funds disability and Paid Family Leave benefits. For 2025, the SDI withholding rate is 1.2% of wages. A change in 2024 removed the wage ceiling, so all wages are now subject to the SDI tax.

Oregon imposes a Statewide Transit Tax (STT) of 0.1% on employee wages. This tax is withheld from Oregon residents and nonresidents working in the state. Additionally, employers in certain transit districts, like the Portland metro area (TriMet), pay a separate employer-paid transit tax. As of 2025, the TriMet transit tax rate is 0.8237% of wages paid by the employer.