How New Ohio Tax Changes Could Affect You

Earlier this month, Governor Mike DeWine signed into law House Bill 33, Ohio’s 2024-2025 budget legislation, which includes changes to individual tax rates, municipal income tax provisions, the resident tax credit, Commercial Activity Tax on businesses, and various other changes that could impact you.

Ohio Individual Income Tax

Income tax rates and brackets

If you pay Ohio income taxes, you are receiving a tax cut. The budget reduced Ohio’s income tax brackets from 3 in 2023 to 2 in 2024. If your Ohio taxable income is less than $26,050, you will continue to not pay any Ohio income tax. For those with taxable income over $100,000, the tax rate will be capped at 3.5%.

Tax Year 2022
0.00%: $0 to $26,050
2.765%: $26,051 to $46,100
3.226%: $46,100 to $92,150
3.688%: $92,050 to $115,300
3.99%: $115,300+

Tax Year 2023
0.00%: $0 to $26,050
2.75%: $26,050 to $100,000
3.688%: $100,000 to $115,300
3.75%: $115,300+

Tax Year 2024
0.00%: $0 to $26,050
2.75%: $26,050 to $100,000
3.50%: $100,000+

Additional changes for Ohio Individual Income Tax Filers

Resident Credit for Pass-Through Entity (PTE) Taxes Paid to Other States
The new law allows Ohio residents who are subject to double taxation on PTE income at the state level to return to a status quo position by claiming a credit on their individual income tax return for entity-level PTE taxes paid to other states. The law also requires that the PTE taxes that reduced an individual’s federal adjusted gross income be added back at the state level.

Tax credit for affordable housing
The budget created new tax credits for builders that construct rental units for lower income Ohioans.

Tax deduction for purchase of a home
Beginning January 1, 2024, an income tax deduction will be available for amounts contributed to a homeownership savings deposit account. The deduction will be capped at $10,000 per year for married couples filing jointly and $5,000 per year for individuals, with a lifetime maximum of $25,000. Interest earned on the savings, and employer contributions to those accounts will also be deductible.

Municipal Income Tax
The bill limits late fees and penalties imposed on taxpayers failing to file city income tax returns on time. The late filing penalty will be capped at $25 instead of the current $150. In addition, the bill requires any late filing penalty imposed on a taxpayer’s first late filing to be refunded or abated once the return is filed. The due date for filing municipal net profits tax returns will be extended from October 15 to November 15.

The bill exempts individuals under the age of 18 from Ohio municipal income tax. If you are younger than 18 and working, you won’t need to pay any city income tax.

Beginning in 2024, businesses with remote or hybrid employees or owners will have the option to use a modified apportionment formula. This applies only to the net profits tax, not withholding.

Commercial Activity Tax

The bill increases the annual exemption from $150,000 to $3 million of taxable gross receipts for the 2024 tax year. It further increases the exemption to $6 million beginning in 2025. After this two-year phase-in, it is estimated that 90% of Ohio-based businesses will no longer pay the CAT. However, the governor vetoed the provision that would eliminate the filing requirement for businesses falling under the exemption, so taxpayers with more than $150,000 of taxable gross receipts that owe no CAT will still need to file returns reporting a $0 tax due.

Highlights of other changes

Sales Tax Holiday
Ohio will have a sales tax holiday in August 2024, but the length remains undetermined after Ohio Gov. Mike DeWine vetoed lawmakers’ requirement that it last for two weeks. The tax reprieve would be on most tangible items valued at $500 or less. It will not apply to alcohol and tobacco.

No sales tax on baby items after October 1
You won’t pay sales tax on most baby items, including diapers, wipes, skin cream and ointments, as well as car seats, cribs and strollers designed for newborns to 36-months.

Subsidized Childcare
The budget made a modest increase in the income guidelines, raising the amount families can earn to 145% of the federal poverty level.

EdChoice scholarship for private school
The universal school voucher program for Ohio was created; how much you receive is based on your family income. Families earning up to 450% of the federal poverty level (about $135,000 for a family of four) will receive the full amounts, $6,165 for K-8 and $8,407 for high school. The scholarships decrease with income until reaching 750% of the federal poverty level (about $225,000 for a family of four). Every family above that income will receive $650 for K-8 and $950 for high school.

Reduced fee school lunches will now be entirely covered and available at no charge.

Nursing homes
Ohio will increase its oversight of these facilities. Those who exceed care expectations will be eligible for more state dollars. The state will build a website with “detailed information” on every nursing home in the state so people can compare their options.

The budget allocated $40 million for a new healthy aging grant program that will assist those who want to age at home.

Social media restrictions
If you are under the age of 16, you will need a parent’s or guardian’s approval to create a new account beginning in January 2024.

Ohio College Opportunity Grant expanded
HB 33 includes increased funding for the Ohio College Opportunity Grant (OCOG), the state’s needs-based financial aid program, and creates a new merit scholarship to provide $5,000 awards to students in the top 5% of their graduating class in Fiscal Year 2025.

College annual tuition increases limited
The bill restricts universities to a 3% annual tuition increase rather than basing it on inflation.

For more information on how these recent Ohio changes affect your specific situation, contact your tax professional.

The information contained in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional for your specific situation.

Filed under: Dollars & Sense, Life, News
Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.