Ohio Tax Legislative Update

On March 30, 2018, Ohio passed two bills affecting Ohio Taxpayers. SB22 updates Ohio’s conformity to the Internal Revenue Code and incorporates important changes from the federal Tax Cuts and Jobs Act (TCJA) and the Bipartisan Budget Act of 2018. HB24 allows taxpayers to deduct certain medical expenses, which was previously disallowed.

Individual Income Tax Changes

PTE Losses: The new law limits the amount of pass-through entity (PTE) losses taxpayers can claim in a taxable year. Now, PTE investors may only claim $250,000 of distributed losses ($500,000 if filing jointly) each year. The excess loss may be carried forward as a net operating loss (NOL) and claimed as a deduction, limited to 80% of taxable income.

Bonus Depreciation: The TCJA enhanced bonus depreciation allowing a 100% deduction in the year certain depreciable property is placed in service. Ohio decoupled from these federal bonus depreciation provisions, requiring taxpayers to add back 5/6 of the depreciation deduction otherwise permitted. The taxpayer can then take 1/5 of the disallowed amounts in the next 5 years.

Claimed Dependents: Ohio law previously required that taxpayers must claim dependents on their federal returns to also claim an exemption on their Ohio returns. The TCJA suspended personal exemptions until 2025, meaning that taxpayers would not be claiming federal exemptions for dependents. Ohio suspended the requirement, allowing taxpayers to claim dependent exemptions on Ohio returns even though no federal exemption is claimed.

529 Expansion: Previously, only qualified higher education expenses were exempt from federal and state income tax. Consistent with the expansion under the TCJA, Ohio law now allows 529 plans to be used for K-12 education expenses. These contributions are eligible for the state income tax deduction.

Subsidized Health Insurance Deduction: Ohio taxpayers may deduct premiums for unsubsidized health insurance plans and other medical care expenses exceeding 7.5% of the individual’s adjusted gross income for 2017. Taxpayers who have already filed returns may file and amended return if they would qualify for this deduction.

Permanent Back-to-School Tax Holiday

For the last few years, Ohio has held a 3-day sales tax holiday in August where certain back-to-school purchases were exempt from tax. In H.B. 24, the General Assembly made this tax holiday permanent. Beginning on the first Friday of August through the weekend, sales of clothing of $75 or less, and school supplies or instructional material of $20 or less, are not subject to Ohio sales and use tax.

If you have any questions about these Ohio tax changes, or about how Ohio taxes you or your business, please contact a member of our team.