House Bills 62 and 166 were signed by Ohio Governor Mike DeWine on August 23, 2019. These bills will enact several important changes to the Ohio income tax law for the 2019 tax year. These changes will apply to income tax returns due on April 15, 2020.
The upcoming tax changes are explained below:
• Ohio is combining the bottom three tax brackets. The tax rate for the new configuration is 0%. This means taxpayers with Ohio Taxable Nonbusiness income of $21,750 or less will pay $0 in Ohio income tax.
• All Ohio income tax rates have been reduced by 4%. The top tax rate is now 4.797%.
• There will be no adjustment for Ohio’s personal and dependent exemption amounts for 2019. The 2019 adjustments will be the same as tax year 2018.
• Ohio’s earned income credit (EIC) is simplified. The nonrefundable credit now equals 30% of your federal earned income credit, if applicable.
• The Ohio campaign contribution credit and Ohio financial institutions tax credit are no longer available. This is true even for those who have already contributed to an eligible campaign or paid Ohio financial institution taxes in calendar year 2019. The credits will be removed from all future versions of the Ohio Schedule of Credits.
• There is a newly enacted nonrefundable credit for investing in Ohio Opportunity zones. The Ohio Opportunity Zone credit is administered by the Development Services Agency and requires an approved application and credit certificate in order to claim it. This credit will be added to the “Nonrefundable Business Credits” section of the Ohio Schedule of Credits.
Ohio’s Business Income Deduction (BID)
• Ohio now uses the concept of “modified adjusted gross income” (MAGI). Ohio MAGI is simply your Ohio adjusted gross income (Ohio IT 1040, line 3) plus the business income deduction claimed on your Ohio return (found on Ohio Schedule A, line 11). Please note:
o If you do not claim the business income deduction, this change will have no impact on your Ohio income tax.
o Ohio modified adjusted gross income is not the same as federal modified adjusted gross income.
• Specifically, MAGI is used to determine your personal/dependent exemption amounts and your eligibility for certain tax credits, including:
o Child and Dependent Care Credit
o Joint Filing Credit
• Additionally, MAGI (less personal/dependent exemptions) is used to determine your eligibility for the following tax credits:
o Retirement Income and Lump Sum Retirement Income Credits
o Senior Citizen and Lump Sum Distribution Credits
o Ohio Exemption Credit
• MAGI will now be used to calculate school district income tax for Ohio taxpayers living in a taxing school district. Please see below:
o Traditional Tax Base: Your tax base remains unchanged
o Earned Income Tax Base: Your tax base will still include your wages, salaries, tips, and other employee compensation, as well as any net earnings from self-employment. However, in prior years, these amounts were limited by your Ohio adjusted gross income. Now, your tax base is limited by your MAGI. Thus, your earned income tax base will now include any amounts you deducted via the business income deduction on your Ohio IT 1040.
• Taxpayers will no longer be able to allot $1 of your income tax due to the “Ohio Political Party Fund”. On all future versions of the IT 1040, the checkboxes for this allocation will be removed.
Any additional income tax changes will be not apply to the 2019 tax year. Future income tax changes will effect 2020 income tax returns or later. Future changes will be explained at a later date.
*Ohio Department of Taxation (2019, August 23)