Leverage Oregon’s Agribusiness Tax Credit to Offset Overtime Payments
With the enactment of House Bill 4002 in February 2022, Oregon’s agricultural employers have been navigating overtime requirements while managing their operational costs. These overtime pay rules for agricultural workers in Oregon have significant implications for agribusinesses.
This legislation also introduced the Agricultural Employer Overtime Tax Credit (AEOTC), designed to alleviate some of the financial pressures associated with these changes.
Discover how these laws can impact Oregon’s agribusiness, what they mean for business owners and how to leverage this opportunity with the following insights.
Background: Overtime Requirements
Beginning in 2023, agricultural employers in Oregon must provide overtime pay to workers exceeding certain weekly hour thresholds. The implementation of these thresholds occur over several years:
- 2023–2024: Overtime after 55 hours per week
- 2025–2026: Overtime after 48 hours per week
- 2027 onward: Overtime after 40 hours per week
These requirements apply broadly across the agricultural sector, with specific exemptions for immediate family members, certain hand harvesters, and workers primarily engaged in livestock range production.
Understanding Oregon's Agricultural Employer Overtime Tax Credit (AEOTC)
The AEOTC is a refundable tax credit available to agricultural employers who pay overtime wages to eligible workers. Effective from 2023 through the 2028 calendar year, this credit is intended to support employers during the transition to the new overtime pay structure. Unlike traditional payroll tax credits, the AEOTC is claimed on income tax returns, allowing employers to receive a refund if the credit exceeds their tax liability.
The AEOTC Structure
The AEOTC is structured to help agricultural employers manage the financial impact of the new overtime requirements. The credit is calculated based on a percentage of the difference between the overtime pay and the base wage for hours worked beyond the specified thresholds.
The percentage of the credit varies according to the size of the employer and the type of agricultural operation.
The total annual cap for the AEOTC is set at $55 million. If the total claims exceed this cap, the Oregon Department of Revenue will proportionally reduce the credits awarded to each applicant.
Eligibility and Application Process
To qualify for the AEOTC, employers must meet specific criteria:
- Engage in agricultural activities as defined by Oregon law
- Pay overtime wages to eligible agricultural workers
- Apply annually through the Oregon Department of Revenue's Revenue Online system
The application window runs from January 1 to January 31 each year, covering the previous tax year. For instance, wages paid in 2025 will have an application period from January 1, 2026, to January 31, 2026. Approved applicants will be notified of their credit amount by June 1, and if an application is denied or adjusted, employers have 30 days to appeal.
While many farmers prefer to file by March 1, those applying for the AEOTC will need to take advantage of the automatic extension, as the credit amount will not be known until after June 1, following the typical tax filing deadline of April 15.
Special Considerations for Farm Labor Contractors
Farm labor contractors (FLCs) are not eligible for the AEOTC. However, when FLCs provide labor to agricultural employers, the overtime hours worked by employees are allocated among the farms based on agreements between the FLC and the employers. Each farm can apply for the credit corresponding to their share of the overtime hours.
Implications for Agricultural Employers
The AEOTC offers financial relief to agricultural employers adapting to the new overtime pay requirements. By providing a refundable credit, the program helps employers manage increased labor costs while promoting fair compensation for workers.
Employers must diligently track employee hours and maintain accurate records and a tax advisor can help an employer navigate the application process. Staying informed about the phased-in overtime thresholds and credit percentages is crucial for leveraging the benefits of the AEOTC.
The credit is based on the difference between the base wage and the overtime payment. For example, if the base wage is $30 and the overtime payment is $45, the credit calculation is based on the $15 difference, not the base wage or overtime payment amounts.
For clarity, FTEs are calculated based on 2,080 hours. Therefore, if total employee hours amount to 14,560, the calculation indicates 7 FTEs.
We’re Here to Help
For more information on Oregon’s agricultural employer overtime tax credit and how it can benefit your business, contact your firm professional.