Yep! You heard me correctly. Ohio has a new flat tax. Doesn’t affect everyone but it does affect people with Ohio Business income that is over the amount that can be deducted with that handy dandy Ohio Business Credit.
What’s the Ohio Business Credit you ask?
Well…..let me tell you. If you have business income on your tax return…..here are just a few examples of income that MAY qualify….
- self employment income as a sole proprietor
- self employment income as an S Corporation
- rental income received on a regular basis
- wages from an s corporation that you own at least 20% of
- partnership income with active participation
- guaranteed payment from a partnership
You can get a credit on your Ohio tax return of 75% of that amount. YES! 75%!!!! Woohoo! Here is the small print…..it’s 75% on up to the first $250,000 in filing Married Filing Joint (the amount varies depending on your filing status) in income that qualified. But that’s a lot, right?
For 2016 it is 100% of the first $250,000. So, yeah, that’s fantastic.
Any income in excess of that is taxed at a flat tax rate of 3% for both 2015 and 2016. Yep.
One con to this was that with the original change, the 3% tax on that portion of income between 75% -100% of the maximum amount would cost taxpayers MORE than under the old system. This is because of Ohio’s graduated marginal tax rates. 3% is likely higher than what would have been paid. Senate Bill 208 is the attempt to remedy that situation by placing limits on the tax for that portion of income.