Work in California, Live in Oregon: How Your Pay Is Taxed

Reciprocity

Do California and Oregon have a tax reciprocity agreement?

No. There is no reciprocity agreement between California and Oregon, so a California employer withholds California income tax on wages for work you do in California. Only the wages earned in California are subject to California withholding.

Double taxation is handled on your returns instead, and in this pair it runs in an unusual direction. Oregon law does not allow its residents a credit for income tax paid to a state that gives nonresidents a credit for tax paid to their home state, and California is such a state. So Oregon taxes your full income, and California lets you subtract the Oregon tax on the same wages through its other state tax credit.

Filing

Which returns does an Oregon resident with a California job file?

You file two state returns plus your federal return:

• Oregon Form OR-40, the full-year resident return. Oregon taxes residents on all sources of income, so your California wages go on it in full, with no Oregon credit for the California tax.
• California Form 540NR, the nonresident return, reporting your California-source wages, with Schedule S attached to claim the other state tax credit for the Oregon tax.

Prepare the Oregon return first, because the California credit needs the Oregon tax figure, and attach Schedule S and a copy of your Oregon return to Form 540NR. Oregon's own guidance gives the same instruction: an Oregon resident with income taxed by California must claim the credit on the California nonresident return.

For tax year 2025 both returns were due April 15, 2026. California allows filing until October 15, 2026 without a late filing penalty, but tax owed was due by April 15. Oregon accepts your federal extension; if you need more time for the Oregon return only, Oregon points to Publication OR-40-EXT, and the extended Oregon due date is October 15, 2026.

California tax

How does California tax a nonresident's wages?

California sources wages where the work is performed: neither the employer's location nor where you are paid changes that. On Form 540NR you first figure the tax on your total taxable income as if you were a resident, turn it into an effective rate, and multiply your California taxable income by that rate. Your exemption credits are then multiplied by the share of your taxable income that comes from California.

For tax year 2025 the rates run from 1% to 12.3%, and taxable income above $1,000,000 carries an additional 1% Behavioral Health Services tax, the renamed Mental Health Services tax. The single standard deduction is $5,706 ($11,412 married filing jointly), and the personal exemption credit on Form 540NR is $153 per person. A single filer's taxable income between $57,542 and $72,724 is taxed at $1,987.41 plus 8% of the amount over $57,542.

If all of your income is California wages, the effective-rate step changes nothing and your California tax equals the resident tax on the same income. The Schedule S credit then reduces it, as the next section explains.

Oregon credit

How does California's credit prevent double taxation?

Oregon law bars a credit for income tax paid to a state that itself allows nonresidents a credit for tax paid to their home state. California allows it: the FTB's Schedule S instructions name Arizona, Guam, Oregon and Virginia as the places whose residents may claim California's other state tax credit on income that California also taxes. Oregon's Publication OR-17 says the same from its side, with an example of an Oregon resident who must claim the credit on his California nonresident return.

So you pay Oregon its full tax on all your income. On Schedule S you compare the California tax on the double-taxed wages with the Oregon tax on the same wages and claim the smaller amount, using credit code 187, against the tax on Form 540NR. If Oregon's tax on those wages is at least as large as California's, your net California tax is zero and the California withholding comes back as a refund. If California's tax is larger, which can happen at high incomes because California's top rates are higher, you pay California the difference.

Attach Schedule S and a copy of your Oregon return to the California return, with a separate Schedule S for each state if you have more than one. Indiana has not been treated as a reverse credit state for California since tax year 2017, so check the current FTB instructions for the list.

Payroll

What should your California employer withhold?

Your California employer withholds California income tax on the wages you earn in California, using your Form DE 4, the Employee's Withholding Allowance Certificate. That withholding does not reflect the Schedule S credit, so when the credit cancels your California tax, the California withholding is refunded, while Oregon's full tax still has to be paid.

Oregon cannot require withholding for Oregon residents when the services are performed for an employer that has no employees working in Oregon. Some out-of-state employers withhold Oregon tax as a courtesy; otherwise you cover the Oregon tax yourself with estimated payments. Oregon generally expects them if your tax after credits and withholding will be at least $1,000, with payments due April 15, June 15, September 15 and January 15 of the following year.

California State Disability Insurance also comes out of your California pay: 1.3% of all wages for 2026 (1.2% for 2025), with no wage cap since 2024. It funds disability and Paid Family Leave benefits and is not an income tax.

Example: full-time California worker, single, $75,000 salary

Full-year Oregon resident, all wages for work in California, tax year 2025, standard deductions. Federal tax from the 2025 table for the Oregon subtraction; California tax from the 2025 tax table and Form 540NR steps. Not counted: CA SDI, the Oregon transit tax and the Oregon kicker. Approximate.

Remote work

What if you work from home in Oregon some days?

Days you work from your Oregon home are not California-source wages, because California sources wages where the services are performed. Your employer should split wages by workdays, and only the California share is subject to California withholding. Keep a log of where you worked each day.

Those Oregon days count on the Oregon side. An employer must withhold Oregon tax from wages paid to Oregon residents working in Oregon, including employees who telecommute from home, and employers owe the TriMet or Lane Transit District payroll tax for work performed in those districts, which includes the homes of Oregon resident employees who telecommute. Wages for Oregon days are taxed only by Oregon, so they do not enter the Schedule S credit.

Oregon payroll items

Does Oregon add payroll taxes for residents who work out of state?

One does and one does not:

• Statewide transit tax: 0.1% of wages, applied to the wages of Oregon residents regardless of where the work is performed. Measure 120 did not pass in May 2026, so the rate stays at 0.1%. You can ask an out-of-state employer to withhold it as a courtesy. If it does not, you file Form OR-STI; the transit tax is not reported on the Oregon income tax return.
• Paid Leave Oregon: it follows where you work. The 2026 contribution rate is 1% of gross wages up to $184,500, with employees paying 60% of it at large employers, and benefits go to employees who work in Oregon. California wages are covered by California SDI instead.

If you live in the Portland area, local income taxes based on residence can reach all your income, including California wages: Multnomah County's Preschool for All tax is 1.5% on Multnomah County taxable income over $125,000 for individuals ($200,000 for joint filers), the Metro Supportive Housing Services tax is 1% above its income threshold, and the Portland Arts Tax for 2026 is $50 for single filers with Oregon taxable income at or above $20,000.

Moving

What if you moved between Oregon and California this year?

A mid-year move changes the forms. Moving from California to Oregon, you file California Form 540NR as a part-year resident, reporting all income while a California resident and California-source income afterwards, and Oregon Form OR-40-P, the part-year resident return. Moving the other way reverses the roles. Relief for double taxation applies only to income that both states actually taxed.

Keep records of the move date, lease or closing papers, driver license and voter registration. California presumes you are a resident for any year in which you spend more than nine months in the state, and Oregon treats as residents people who keep a residence in Oregon and spend more than 200 days there during the tax year.