Ohio Income Tax Changes: Flat Rate, Withholding, and Deadlines

Starting with tax year 2026, Ohio income tax uses a single flat rate of 2.75 percent on nonbusiness income above $26,050, with no state income tax owed on income at or below that amount. The old top bracket of 3.125 percent on earnings over $100,000, which itself had been cut down from 3.50 percent in 2024, is gone. House Bill 33 began the phase-down, and House Bill 96 finished it.

How the Flat Rate Works

If your taxable nonbusiness income after exemptions sits at or below $26,050, you owe Ohio nothing. Above that, the tax is $332 plus 2.75 percent of every dollar over $26,050.¹ Someone earning $50,000 and someone earning $200,000 now face the same marginal rate on each additional dollar.

The people who notice the change most are earners above $100,000. Take $150,000 in taxable nonbusiness income: in 2024, the slice above $100,000 was taxed at 3.50 percent; in 2025, 3.125 percent; now, 2.75 percent. Below $100,000, the marginal rate hasn’t moved since 2024.

Personal Exemptions in 2026

Ohio still allows a personal exemption for you, your spouse, and each dependent, with the amount tied to your modified adjusted gross income:²

$2,350 per person if your modified AGI is $40,000 or less
$2,100 per person between $40,001 and $80,000
$1,850 per person above $80,000

The bigger shift for 2026 is at the top. Taxpayers with modified adjusted gross income above $500,000 lose the exemption entirely. The prior cutoff was $750,000, so households with dependents in that income range will feel the change.² The statutory base amounts can be adjusted annually for inflation, so check the Ohio Department of Taxation for the indexed figures that apply to your return.

Business Income Is Taxed Differently

Wages and salary flow through the flat rate described above. Pass-through business income from a sole proprietorship, partnership, or S corporation follows a separate track. You can deduct up to $250,000 of business income if you file single or jointly, or $125,000 if married filing separately. Anything above that deduction is taxed at a flat 3 percent, not 2.75 percent.³

If you have both a paycheck and pass-through income, the two streams are calculated separately. Getting the classification right matters; the Department of Taxation flags misclassification between business and nonbusiness income as a common filing error.

Check Your Paycheck Withholding

Employers are required to use the 2026 withholding tables that reflect the flat 2.75 percent rate. If your paystubs still look like last year’s, state tax is probably being over-withheld. You’ll get it back as a refund, but you can also fix it going forward.

Update your Ohio Form IT 4, the Employee’s Withholding Exemption Certificate, to adjust how much Ohio tax comes out of each check. The form controls the number of exemptions your employer applies to your wages.⁴ Marriage, a new child, or losing a dependent are all reasons to file a fresh IT 4.

The IT 4 only touches Ohio withholding. Federal withholding runs off the IRS Form W-4, which uses its own structure. Changing one doesn’t change the other.

Local Taxes Haven’t Changed

The flat state rate doesn’t touch the two local layers that most Ohio residents also pay. Both are worth checking, because they’re where most filing-time surprises come from.

Municipal Income Tax and Remote Work

Most Ohio cities and villages levy their own income tax. Under the occasional entrant rule, an employer generally isn’t required to withhold municipal tax for a city where you work 20 days or fewer in the calendar year; the withholding goes to the employer’s home municipality instead.⁵

Working from home doesn’t fit this rule. The statute defines “worksite location” as a construction site or other temporary worksite and explicitly excludes an employee’s home.⁵ Remote work is governed by a separate provision, Ohio Revised Code Section 718.021, which attributes wages earned at a “qualifying remote work location” to the employee’s “qualifying reporting location” for municipal tax purposes. In practice, your remote wages get sitused to a designated reporting location rather than the city where your desk sits.

If you’ve gone remote and your employer is still withholding tax for the office city, you may need to request a refund from that municipality and redirect your local withholding to the right jurisdiction. Sorting it out mid-year is easier than at filing time.

School District Income Tax

As of January 2026, 210 Ohio school districts impose their own income tax on top of state and municipal taxes. It’s based on where you live, not where you work, and it requires a separate return. Districts use one of two methods:⁶

Traditional, which taxes your modified adjusted gross income minus exemptions and includes retirement income.
Earned income, which taxes only wages and net self-employment earnings and excludes retirement income.

Which method applies matters a lot if you’re retired or living off investments. The Ohio Department of Taxation’s address lookup tool identifies your district and its rate. Missing the school district return is a common mistake, and the penalties track those for the state return.

If You Cross a State Line to Work

Ohio has reciprocal income tax agreements with all five bordering states: Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. If you live on one side of the line and work on the other, the agreement lets you pay income tax only to your state of residence, provided you file the correct exemption form with your out-of-state employer.

Pennsylvania is the complicated case. It’s a reciprocal state, but it also applies “convenience of the employer” rules. An Ohio resident working remotely for a Pennsylvania employer by choice rather than necessity can land in an overlap that’s worth running past a tax professional.

Federal Return Ripple Effects

Lower Ohio tax means a smaller state tax deduction if you itemize federally. The state and local tax (SALT) deduction is capped at $40,400 for tax year 2026, or $20,200 if married filing separately.⁷ Fewer Ohio taxpayers may hit it, though anyone also paying heavy property and municipal taxes can still bump into the cap.

If you itemized last year and deducted Ohio income tax, any state refund you receive may be partly taxable federally. You’ll get a 1099-G from Ohio showing the amount. The question is whether that state deduction actually reduced your federal tax last year; if you took the standard deduction or your SALT was already capped above the refund amount, the refund generally isn’t federally taxable.

For context, the 2026 federal standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of household.⁷ With Ohio liabilities dropping, more residents may find the standard deduction beats itemizing.

Deadline and Estimated Payments

Ohio returns are due April 15, matching the federal deadline. An extension buys you more time to file but not to pay. If you expect to owe, send an estimated payment by April 15 even if the full return isn’t ready, because interest and penalties accrue on unpaid balances.

If you make quarterly estimated payments, recalculate them against the 2.75 percent flat rate. Paying based on the old brackets ties up cash you don’t owe; paying too little triggers interest.

1
Ohio Legislative Service Commission. Ohio Code 5747.02 – Tax Rates
2
Ohio Legislative Service Commission. Ohio Revised Code 5747.025 – Personal Exemptions
3
Ohio Department of Taxation. Business Income Deduction Information
4
Ohio Department of Taxation. Form IT 4 – Employee’s Withholding Exemption Certificate
5
Ohio Legislative Service Commission. Ohio Code 718.011 – Occasional Entrant Exemption
6
Ohio Department of Taxation. School District Income Tax
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill