Ohio Tax Guide 2026

Personal income tax collapse

Ohio has been collapsing its bracket structure for years. HB 33 (2023) eliminated the top bracket and consolidated to effectively a single 2.75% rate for income above ~$26,050 (single; thresholds inflation-indexed). Income under that threshold is taxed at 0%. The state has signaled intent to move to a true flat rate or eliminate income tax altogether — verify the current year's structure against the Ohio Department of Taxation tables.

Business Income Deduction (BID)

Ohio R.C. §5747.01(A)(31) excludes 100% of the first $250,000 ($125,000 MFS) of qualifying business income from personal income tax — and applies a flat 3% rate to qualifying business income above that. This is one of the most generous state-level small-business deductions in the country. 'Qualifying business income' includes Schedule C, K-1 from S-corps and partnerships, rental income that rises to a trade or business, and farming income. The BID is unique to Ohio — most flat-rate states don't carve out business income.

Commercial Activity Tax (CAT)

The CAT (Ohio R.C. §5751) is a gross-receipts tax on persons with taxable gross receipts >$3 million from Ohio sources (threshold rising; HB 33 raised it from $1M to $3M in 2024 and to $6M in 2025 — verify current). Rate: 0.26% on receipts above the threshold. No deductions, no losses — pure receipts in. Sourced to where the customer is (market-based). For most sole proprietors and small businesses below the threshold, the CAT is inert. For mid-market businesses crossing the threshold, it adds a meaningful gross-revenue tax distinct from income tax — a small business at $5M revenue with a 5% net margin pays $5,200 of CAT (0.26% × 2M above threshold) on top of any income/PTET liability.

Municipal income tax — Ohio's defining complexity

Over 600 Ohio cities, villages, and joint economic development districts levy their own income tax — the densest municipal-tax landscape in the country. Rates typically range from 0.5% to 3% (Toledo 2.25%, Columbus 2.5%, Cleveland 2.5%, Cincinnati 1.8%, Akron 2.5%, Dayton 2.5%). **Collection patterns:** • **RITA** (Regional Income Tax Agency) — collects for ~330 municipalities • **CCA** (Central Collection Agency, Cleveland-based) — collects for ~50+ municipalities • **City-direct collectors** — Columbus, Cincinnati, Toledo, Akron, others run their own Wage earners typically have employer withholding for their work city, with a partial credit on their resident-city return for taxes paid to the work city (rules vary by city — credit may be capped at the resident-city's own rate). Self-employed file quarterly estimates directly with each city where work was performed. HB 197 of 2020 (extended) addressed the COVID remote-work scramble — but the rules for remote workers now generally treat work as performed at the employee's physical location, eliminating the temporary 'principal place of work' presumption.

PTET

Ohio R.C. §5747.38 (effective for tax years 2022+) allows S-corps and partnerships to elect a 5% entity-level tax. Owners receive a refundable PIT credit. Most useful for Ohio residents in pass-through entities seeking federal SALT-cap workaround — the federal deduction at entity level escapes the $10k SALT cap. Non-resident owners often prefer NOT electing in Ohio (the entity-level tax can complicate home-state credit mechanics). Election is annual.

Sales tax

State rate 5.75%. Counties may add 0.25%–2.25%. Combined rates range from 6.5% (low-tax counties) to 8% (Cuyahoga, Hamilton). Marketplace facilitator law (Ohio R.C. §5741.13) requires platforms to collect on third-party sales. Economic nexus: $100,000 or 200 transactions.

Property tax

Statewide average effective ~1.59%. Funded primarily by school districts (60%+ of typical bill). Property tax rates vary widely by county and school district — Cuyahoga County (Cleveland) has some of the highest effective rates in the state; rural southeastern Ohio among the lowest. Homestead Exemption: $25,000 off market value for seniors 65+ and permanently disabled with income under ~$36k.

Self-employed compliance reality

An Ohio sole proprietor working in three different cities in one tax year may have to file: • Federal 1040 + Schedule C + Schedule SE • Ohio IT 1040 (personal income tax) • Three separate municipal returns (each city where work performed) • CAT registration if gross receipts >$3M The municipal-tax compliance burden — not the state income tax itself — is Ohio's defining drag on self-employed filers. Plan for a tax preparer who knows local Ohio practice or self-file using software with comprehensive Ohio municipal coverage (Drake, TaxAct have decent support; many cheaper products do not).

Worked example: Lakshmi Rao, freelance physical therapist (Columbus resident, single, 2026)

Lakshmi's 2026 SE income: $135,000. All work performed in Columbus. Net business income after expenses: $115,000.

Federal: SE tax ~$16k, income tax ~$15k (skipped). Ohio state: Business Income Deduction: 115,000 (under $250k cap) — 100% excluded from personal IT Ohio personal income tax on business income: $0 (Lakshmi has no other income; nothing else to tax) Ohio IT 1040 liability: $0 Columbus municipal income tax (2.5%): Columbus does NOT honor the state BID — full self-employment income taxed at city level 2.5% × 115,000 = $2,875 Filed via City of Columbus Department of Taxation (city-direct, not RITA) CAT: not applicable — gross receipts well under $3M threshold. Total Ohio state+local: $2,875 (all municipal). The BID effectively makes Lakshmi's state PIT zero — Ohio's compelling answer to high state-rate competitors for small-business income. The municipal tax is the remaining drag.

Statute references

• Personal income tax — Ohio R.C. §5747.02
• Business Income Deduction — Ohio R.C. §5747.01(A)(31), §5747.02(A)(4)
• Commercial Activity Tax — Ohio R.C. Chapter 5751
• Pass-Through Entity Tax election — Ohio R.C. §5747.38
• Municipal income tax authority — Ohio R.C. Chapter 718
• Sales and use tax — Ohio R.C. Chapters 5739, 5741

Related pages

• State Tax Comparison →
• PTET Analyzer →
• QBI §199A Guide →