How Ohio’s marginal income tax rate compares with surrounding states

COLUMBUS — The top marginal income tax rate in Ohio is 4.79 percent, higher than several of its neighboring states, according to a new report.

The marginal income tax rate is higher than neighbors Pennsylvania (3.07 percent), Indiana (3.23 percent) and Michigan (4.25 percent), according to the report from the Tax Foundation. It is lower than neighbors Kentucky (5 percent) and West Virginia (6.5 percent).

In July 2019, Gov. Mike DeWine signed into law House Bill 166, Ohio’s fiscal year 2020-21 biennial budget. It included several individual income tax changes, including consolidating the state’s eight tax brackets into six. It also reduced the remaining marginal rates by 4 percent, according to the Ohio Department of Taxation.

“Income tax season may not be everyone’s favorite, but this year Ohioans will benefit from a [4 percent] reduction in the income tax rates,” Ohio Tax Commissioner Jeff McClain said in a news release about the opening of Ohio’s income tax season. “I’m pleased also that Ohio has further reduced the tax burden on its low- to moderate-income residents.”

Under the change, Ohio residents who make $21,750 or less per year pay no state income tax.

While taxes are due April 15, Ohioans will celebrate Tax Freedom Day on April 14, according to the Tax Foundation. The day symbolizes how long Americans need to work to earn enough to pay federal, state and local taxes for the year.

Ohio’s Tax Freedom Day ranks No. 26 in the nation. Alaska tops the list with March 25 as its Tax Freedom Day, while New York and the District of Columbia are tied for No. 50, with May 3 as their Tax Freedom Day.

On the tax front, the state House in October passed House Bill 197, the Tax Code Streamlining and Correction Act. The measure, sponsored by state Reps. Jena Powell, R-Arcanum, and Derek Merrin, R-Monclova Township, makes more than 100 changes to update tax laws and fix errors.

The bill is now pending in the state Senate.

Last month, in talking about the state’s employment data, an economist with an Ohio think tank indicated state policymakers should consider changes to the state’s tax code to spur job growth.

In 2019, Ohio saw the addition of 10,400 new private-sector jobs, according to The Buckeye Institute. The state’s unemployment rate held at a near-record low of 4.2 percent. The year ended with two consecutive months of above-average job growth for the decade, the group said.

“With annual revisions and updates due in March, it remains to be seen how Ohio faired in 2019, yet job growth continued its long-term trend of lagging below the national average, and growth in 2019 was hampered by trade tensions and recession concerns,” Andrew J. Kidd, an economist with The Buckeye Institute’s Economic Research Center, said in a statement.

“To reverse this long-term trend, there are reforms policymakers can adopt that will spur job growth,” Kidd said. “Ohio desperately needs municipal and local tax reform and should eliminate its personal income and commercial activity taxes.”

— Story courtesy of The Center Square.

This story was originally published February 24, 2020 at 4:26 AM with the headline "How Ohio’s marginal income tax rate compares with surrounding states."