Ohio Enacts Tax Changes Impacting Many

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On July 3, 2023, Governor Mike DeWine signed into law the Ohio Biennial Budget Bill, bringing sweeping changes to businesses and individuals in the state.

Commercial Activity Tax (CAT)

For the last 18 years, the Ohio CAT has been a $1 million annual exemption for taxable gross receipts. As of 2024, all taxable gross receipts of $3 million or less will be exempt from CAT, which further increases the exemption to $6 million for tax periods beginning in 2025. The thresholds are exclusion amounts and any tax liability is calculated based on amounts above the exclusion amounts. This major revision is estimated to have 90% of Ohio-based businesses no longer paying CAT after the two-year phase-out.

Elective Pass-Through Entity (PTE) Tax

Ohio adopted an elective PTE tax as a "workaround" for individual PTE owners to the federal state and local tax cap in 2022. However, the new law brings changes for 2023 to the workaround.Ohio will allow its residents to claim a credit for pass-through entity taxes paid to other states and the District of Columbia. The credit is effective for taxable years ending on or after Jan. 1, 2023. Additionally, taxpayers may also apply these provisions to their pass-through entity tax return calculations for taxable years ending on or after Jan. 1, 2022, on an originally filed return or an amended return.

Personal Income Tax

Under the new law, there will be only three tax brackets and the highest rate will be 3.75%. Once fully phased in for 2024, there will be two tax brackets and the highest rate will be 3.50%. Taxpayers earning $26,050 or less will be exempt from paying any Ohio income taxes.Business income will still be taxed at 3.00% for amounts over $125,000 filing single or $250,000 filing jointly.

2023 Brackets 2023 Tax Rate 2024 Brackets 2024 Tax Rate
$0 - $26,050 0% $0 - $26,050 0%
Over $26,050 - $100,000 2.75% $26,051 - $100,000 2.75%
Over $100,000 - $115,300 3.688% Over $100,000 3.50%
Over $115,300 3.75%

Here to Help

Further clarifying guidance on the new legislation is expected in the months ahead. If you’re an Ohio taxpayer, you should consider how this legislation may impact you and your business. Contact our state and local tax advisors for assistance.

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