Income Tax Changes
Income Tax Rate Reduction
Ohio is moving from a graduated income tax system to a flat tax. For tax year 2025, the top individual income tax rate will drop from 3.5% to 3.125%. Starting in 2026, a single flat rate of 2.75% will apply to most taxpayers. Individuals earning $26,050 or less per year will remain exempt from state income tax. Inflation adjustments for tax brackets and personal exemptions are suspended for 2025 and 2026.
Joint Filer Credit
In 2025, eligibility for the joint filer credit and personal, spousal, and dependent exemptions is limited to taxpayers with a modified adjusted gross income (MAGI) of $750,000 or less; in 2026, the limit drops to $500,000.
Repeal of Tuition Credit
Starting January 1, 2026, the personal income tax credit for tuition paid to a nonchartered nonpublic school will be repealed. However, this tax benefit is transitioning to a federal tax credit beginning in 2026. Look for further updates from Rudler on this topic in the future.
Withholding and Payment Changes
Withholding on Gaming Winnings
The bill reduces the withholding rate on lottery, sports gambling, and casino winnings from 4% to 3.125% for calendar year 2025 and down to 2.75% for calendar year 2026.
Retirement Plan Withholding
Beginning in 2027, retirement systems and plans are authorized to withhold school district income taxes, and nonstate retirement plans can now withhold income taxes from a retiree’s benefits.
Pass Through Entity Taxes
HB 96 accelerates the due dates for the second and third estimated tax payments for electing and withholding pass-through entity taxes by one month, aligning payment schedules and improving compliance from 2026 onward:
Business and Estate Tax Provisions
Commercial Activity Tax (CAT)
The commercial activity tax credit for net operating losses accrued under the former corporation franchise tax is now a nonrefundable credit, rather than a refundable one.
School District Income Tax
Beginning in 2026, estates will no longer be subject to Ohio’s school district income tax.
Administrative Updates
Disclosure of Employer Withholding Account Numbers
Ohio is now authorized to disclose an employer’s income tax withholding account number to permit a current or former employee to prepare their return.
Conclusion
House Bill 96 brings significant changes to Ohio’s tax landscape, affecting individuals, families, and business owners alike. Understanding the nuances of these updates—and how they could impact your future tax obligations—is essential for effective planning. At Rudler, we are dedicated to keeping our clients informed and prepared. If you have any questions about these changes or how they might affect your tax situation, our team at Rudler is here to help you navigate the new rules with confidence.
