My Oregon state income on the W2 is less than my federal income. How do I get the Oregon form 40 to use the state income rather than federal?

[DanielV01]

Are you an Oregon resident or non-resident?  And why is the Oregon income less on the W2 than for the Federal return?

[Lisa995]

Oregon starts with the federal AGI.

[pfussell1]

Thanks for the reply! I'm an Oregon resident. I moved here in Sept. 2017. I was granted RSU stock in California, and my company continues to count income from those RSUs as California income and subtracts it from my Oregon income. I have correctly reported each state's income amount from my W2, but that had no effect on my Oregon Form 40.

[DanielV01 · Accepted solution]

Since you are an Oregon Resident, Oregon taxes all of your income no matter where the income is sourced.  If the income is California-sourced income, then you are taxed in both states:  California and Oregon.  To reduce the effect of double-taxation, California and Oregon have a "reverse credit" agreement.  Usually, the nonresident state (in this case, California), taxes the income first, and then you claim a credit for the income tax on the resident return (Oregon).  The reverse credit arrangement goes in the opposite direction:  your resident state taxes the income, and then you claim a credit for the taxes paid on the California return.  

Because of this arrangement, prepare the Oregon return first, and then, on the nonresident California return, you will see a section about taxes paid to reverse credit states.  You will be able to claim the Oregon tax on that section of the California return.

Because of this arrangement, you may wish to have your company make sure they are withhodling Oregon tax on the RSUs (if it is still needed to do so), because you will pay tax to Oregon for RSUs included in your income.

[pfussell1]

Thanks, Daniel! That was very helpful.

[DanielV01]

You are welcome.