Ohio does tax interest income. Starting with the 2026 tax year, interest from savings accounts, CDs, money market funds, and most bonds is taxed at a flat 2.75%, the same rate Ohio applies to wages and other non-business income above a $26,050 threshold.1Ohio Legislative Service Commission. Ohio Code 5747.02 – Tax Rates A few categories of interest are exempt, and depending on where you live, your school district may tax interest a second time.
How the Tax Works
Ohio has no separate rate for interest. Your return starts with federal adjusted gross income, the figure from the bottom of page 1 of your federal Form 1040, which already includes taxable interest reported on your 1099-INT forms.2Ohio Legislative Service Commission. Ohio Code 5747.01 – Definitions3Internal Revenue Service. Topic No. 403, Interest Received After Ohio-specific additions and subtractions, you reach Ohio adjusted gross income.
If that figure (after business income and personal exemptions come out) is $26,050 or less, you owe no Ohio income tax. Above that line, the tax is $332 plus 2.75% of every dollar over $26,050.1Ohio Legislative Service Commission. Ohio Code 5747.02 – Tax Rates So if you earned $5,000 in bank interest and your Ohio adjusted gross income is $60,000, that interest simply adds to your taxable base; nothing about it is taxed differently from a paycheck.
Interest Ohio Does Not Tax
U.S. Government Obligations
Federal law bars states from taxing interest on obligations of the United States. Ohio honors that with a full subtraction for interest and dividends on U.S. government securities included in your federal adjusted gross income.2Ohio Legislative Service Commission. Ohio Code 5747.01 – Definitions That covers Treasury bills, notes, and bonds; U.S. savings bonds (Series E, EE, H, and I); and Sallie Mae bonds.4Ohio Department of Taxation. Ohio IT 1040 Instructions
Not every federally connected security qualifies. Interest from Fannie Mae and Ginnie Mae is not deductible on your Ohio return, and interest paid on a federal income tax refund does not qualify either.4Ohio Department of Taxation. Ohio IT 1040 Instructions If you hold a mutual fund that invests partly in Treasuries, only the Treasury portion of your distribution is deductible. Your fund company reports that percentage in a year-end tax statement.
Ohio State and Local Bonds
Interest from bonds issued by the State of Ohio, Ohio cities, counties, school districts, and other Ohio political subdivisions is exempt from Ohio income tax to the extent it was included in your federal adjusted gross income. Gains from selling these Ohio public obligations also qualify for the subtraction.4Ohio Department of Taxation. Ohio IT 1040 Instructions
Out-of-State Municipal Bonds Get Added Back
Most municipal bond interest is federally tax-exempt and does not appear in your federal adjusted gross income. Ohio requires you to add back interest and dividends from bonds issued by other states and their political subdivisions.2Ohio Legislative Service Commission. Ohio Code 5747.01 – Definitions If you own a California or New York municipal bond fund, that income is federally tax-free but shows up as an Ohio addition.4Ohio Department of Taxation. Ohio IT 1040 Instructions
The distinction matters when you pick bond funds. An Ohio-specific municipal fund produces interest exempt from both federal and Ohio tax. A national municipal fund produces a mix, and only the Ohio-issued portion escapes the Ohio return.
School District Income Tax
Ohio’s state tax is only part of the picture. As of January 2026, 210 Ohio school districts levy their own income tax, with rates ranging from 0.25% to 2.00%.5Ohio Department of Taxation. School District Income Tax6Ohio Department of Taxation. School District Tax Year 2026 Rate List Whether your interest income is subject to that tax depends on which base your district chose when voters approved the levy.
- Traditional tax base. Uses the same income base as the state. Interest, dividends, capital gains, pensions, and other income in Ohio adjusted gross income are all taxable.
- Earned income tax base. Covers only wages, salaries, and net self-employment income. Interest, dividends, capital gains, and retirement income are excluded.
In a traditional-base district, your interest gets taxed a second time at the district rate on top of the state 2.75%.7Ohio Department of Taxation. Guide to Ohio’s School District Income Tax You can check your district’s type and rate using “The Finder” tool on the Ohio Department of Taxation website.
Cities Usually Don’t Tax Interest
Ohio cities and municipalities also levy income taxes, but these generally apply only to earned income: wages, salaries, commissions, and business profits. Interest and dividends are typically exempt from Ohio municipal income tax. Even if you live in a city with a 2.5% rate, your bank interest and bond earnings usually are not subject to it.
Paying the Tax: Estimated Payments
Employers withhold Ohio tax from paychecks, but no one withholds tax on interest income unless you specifically arrange it with your bank. If interest pushes your total Ohio tax liability (after credits and withholding) above $500, Ohio expects quarterly estimated payments.8Ohio Department of Taxation. Estimated Payments This catches a lot of retirees and investors who have no wage withholding to absorb the hit.
The due dates are:
- First quarter: April 15
- Second quarter: June 15
- Third quarter: September 15
- Fourth quarter: January 15 of the following year
When a due date falls on a weekend, it shifts to the following Monday.8Ohio Department of Taxation. Estimated Payments Missing a payment can trigger underpayment interest calculated on Form IT/SD 2210. If you also have a job, an alternative is filing a revised Ohio IT 4 with your employer to raise paycheck withholding enough to cover the interest tax.
Reporting Interest on the IT 1040
Your taxable interest is already baked into federal adjusted gross income when you start the Ohio IT 1040. The Ohio-specific moves happen on the Schedule of Adjustments:
- Add interest from out-of-state municipal bonds that was not already in your federal adjusted gross income.
- Subtract interest from U.S. government obligations (Line 26 on the 2025 form; confirm the current year’s line).
- Subtract interest from Ohio state and local government bonds included in federal adjusted gross income.
The result is Ohio adjusted gross income, which drives the 2.75% calculation on amounts above $26,050.4Ohio Department of Taxation. Ohio IT 1040 Instructions Pull your 1099-INT forms before you start. Box 3 reports U.S. savings bond and Treasury interest; Box 8 reports tax-exempt interest. Both feed directly into the Ohio adjustments.