How to Make the Most of the Massive 2023 Oregon Kicker
For those of you who haven’t paid attention to local tax news (which should be most of you who aren’t CPAs or financial planners), I have some good news: if you paid taxes in Oregon in 2022, you will be getting a large tax credit called the “kicker” this tax season. Read on to learn more and be sure to file those taxes ASAP this tax season!
In 1979, Oregon voters passed a law that was meant to curb spending in the Oregon State government. The law says that for Oregon’s 2-year budget cycle, whatever tax revenue that is collected in excess of what was projected must be returned, or “kicked” back to Oregon taxpayers. Two years ago, the economists were pretty conservative with their estimates, and this year Oregon will return about $5.6 B back to taxpayers. It’s the largest in Oregon’s history and 3x the last record amount.
How much does that mean to you? It’s about 44% of the amount of taxes you paid in the 2022 tax year. For example, if your adjusted income in 2022 was $100,000, you probably paid about $9000 in Oregon income tax. So the tax credit you will see on your 2023 tax return will be about $4000! This would offset any tax due or could be fully refunded to you.
How to Calculate Your Kicker
Multiple 44.28% by the amount on line 22 of your 2022 OR-40 tax return.
When you get your refund, it’s going to be REALLY EASY to spend that extra money, because it’s going to feel like it was free. But technically it is still your money, and with a little planning and positive intention, you can use this money to make a big impact on your current and future financial picture.
Here are 6 ways to make the most of those extra dollars (in order of priority):
1) Bolster your emergency savings plan.
Most financial planners recommend 3-6 months of living expenses set aside for emergencies. These can include unexpected job loss, a major medical expense, or a major home repair.
2) Pay down high-interest rate debt, like credit cards or personal loans
With the prime rate up 5% in the last 2 years, your credit cards have never been more expensive. Use your extra funds to pay down balances with rates higher than 10% annualized.
3) Take advantage of “free” money from your employer
This includes increasing your retirement plan contribution amount to get the full “match” from your employer. For example, if you are only contributing 2% of your salary, but your employer matches up to 4%, then allocating your tax refund here could actually double your money. Another lucrative plan to take advantage of is an ESPP or Employee Stock Purchase Plan, where you can purchase your employer’s stock at a 15% discount.
4) If you have a high-deductible health plan, contribute to your HSA (Health Savings Account)
HSAs are triple tax-advantaged, which means you get to take a deduction for the contribution and never have to pay income tax on future withdrawals (neither the contributions nor the earnings!) Some people use their HSA like an emergency savings account. The strategy is to save receipts for qualifying health expenses for any number of years, paying for those expenses out of pocket and then letting the invested HSA money grow tax-free. Then when you need funds to cover an emergency, you can make a withdrawal. The maximum contribution for HSAs is increasing in 2024— up to $8300 for families or $4150 for individuals.
5) Make a contribution to a tax-advantaged Traditional or Roth IRA
You can contribute up to $7000 into an IRA in 2024 (or up to $8000 if you are over the age of 50). If you are single and making less than $145k in 2024 (or less than $230k for married filing jointly), then you can make the contribution to the Roth account which allows earnings to grow tax-free. (If you want to contribute for the 2023 year, the max is $6,500 and must be made before April 15th.)
6) If you are saving for college, make a contribution to your child’s Oregon College Savings 529 plan
If the contribution is large enough based on your income level, you could also qualify for an additional tax credit of up to $340 for joint households and $170 for individuals. You can find more info on the credit here.
Here’s to good financial decisions in 2024! Stay strong and good luck resisting the urge to yell “We’re going to Disneyland!”
Cheers, Stacy
p.s. One of the reasons Oregon school’s are notoriously underfunded is because of the kicker system. Consider using a portion of your refund to make a tax-deductible contribution to a charity that supports schools in Oregon, like the Eugene Education Foundation. Or use the funds to support another charity of your choice and share the wealth. <3
Full Disclosure: Nothing on this website should ever be considered to be advice, research or an invitation to buy or sell any securities. Please see the Disclaimer page for a full disclaimer.
Stacy Dervin, CFA, CFP® provides fee-only financial planning and investment management services in Eugene, Oregon. Tailored Financial Planning (TFP) serves clients as a fiduciary and never earns a commission of any kind. As a financial advisor, Stacy is on a mission to help Gen X and Gen Y be truly proactive about their financial futures.
