Ohio Gov. Mike DeWine (R) has approved a budget bill that includes an across-the-board personal income tax rate reduction and COVID-19 relief for businesses.
Substitute H.B. 110, signed June 30, includes a 3 percent across-the-board reduction in personal income tax for tax years 2021 and later. The fiscal 2022–2023 budget will also reduce the number of tax brackets from five to four, with 3.99 percent as the new top rate.
The tax cut is a compromise between the 2 percent tax cut proposed by the House and the 5 percent tax cut proposed by the Senate.
Substitute H.B. 110 was approved by the Senate on a 32 to 1 vote and by the House on an 84–13 vote June 28.
Under the bill, the income level at which the lowest tax bracket begins is increased from $22,150 to $25,000 a year. “Ohioans making up to $22,150 were already exempt from state income tax, and now this cut will help an additional 125,000 Ohioans keep more of their paycheck,” Sen. Matt Huffman (R) said in a June 28 release.
The bill will also allocate $155 million in grants to aid businesses hurt by the pandemic. Relief grants will be allocated to assist bars and restaurants ($100 million), the lodging industry ($25 million), entertainment venues ($20 million), and new businesses ($10 million).
H.B. 110 will also provide a sales and use tax exemption for employment services and employment placement services that help businesses find temporary or permanent workers. According to the June 28 comparison document by the Ohio Legislative Service Commission, this will reduce general fund revenues by $92.4 million in fiscal 2022 and by $138.6 million in fiscal 2023.
Beginning in tax year 2026, taxpayers with an ownership interest in a business could take an income tax deduction against the capital gains realized from the sale of their interest. The deduction would be limited to individuals who have invested at least $1 million in a business that has been headquartered in Ohio for at least five years.
The budget will also provide a nonrefundable income tax credit of up to $250 for items used for home- schooling and up to $750 for donations made to organizations that grant scholarships for low-income primary and secondary school students.
The budget will also allow taxpayers whose federal adjusted gross income is less than $50,000 to claim a nonrefundable income tax credit of up to $500 for tuition paid to a private school. Taxpayers whose federal AGI is between $50,000 and $100,000 would be eligible for a $1,000 credit.
According to a June 29 study prepared by the Institute on Taxation and Economic Policy for Policy Matters Ohio, the income-tax cuts will “favor the very wealthiest Ohioans, while providing only modest benefits for moderate-income Ohioans and nothing at all to the state’s poorest.”
The group argues that by eliminating the top tax bracket, the top 1 percent of Ohioans will see an average $5,400 cut per year, but most taxpayers will “receive barely noticeable cuts.”
DeWine’s office did not respond to a request for comment by press time.