On July 1, Ohio Gov. Mike DeWine signed House Bill 110 into law approving the state’s $72 billion two-year budget.
The biennial budget provides funding for state operations, overhauls K-12 school funding, provides $250 million in broadband support for underserved areas and makes numerous tax policy changes.
One of the more notable tax-related changes involves the municipal income tax and working from home.
The bill extends through the end of 2021 the application of the temporary municipal income tax withholding provision for employers enacted last year. The bill allows – but does not require – employers to continue withholding municipal income taxes based on where the employer is located through the end of 2021. However, starting in 2022 the normal 20-day withholding rule will apply at the location where the employee is working.
Additionally, the net profit tax payroll factor should be calculated at the principle place of work through the end of 2021.
Another aspect of H.B. 110 involves municipal refunds.
For tax year 2021, qualified employees will receive a refund of taxes withheld to a municipality where they neither lived nor physically performed services.
Regarding the state income tax, the bill enacts a 3 percent across-the-board income tax rate cut for taxable years beginning in 2021. There is no additional reduction in tax year 2022. It further consolidates the income tax brackets from the current five to four, by bringing Ohio’s top rate down to 3.99 percent on 2021 income greater than $110,650.
The new law also increases the income level at which the first tax bracket begins, from $22,150 to $25,000 in 2021. The language only suspends the annual inflation indexing adjustments for tax brackets for 2021 (not for 2022), but does suspend the indexing for exemption amounts for both 2021 and 2022.
Language within H.B. 110 eliminates the NAICS code requirement on the Ohio tax return when taxpayers claim the business income deduction.
Two other income tax deductions were also enacted but will not begin until tax year 2026.
The first deduction is for venture capital gains and the second deduction deals with the capital gain from the sale of a business.
The budget eliminates the sales and use tax of employment services (providing personnel to perform work under the supervision and control of the purchaser) and employment placement services (locating employment for a job seeker or locating job candidates for an employer).
Regarding the Commercial Activity Tax or CAT, the bill created a permanent CAT exemption for Ohio Bureau of Workers’ Compensation dividends paid to employers, beginning with dividends paid in 2022. Senate Bill 18, enacted earlier this year, exempted OBWC dividends paid in 2020 and 2021.
Click here to see the full array of expenditures and policy changes in H.B. 110.
