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Ohio Income Tax: 3.5% Top Rate, Business Income Deduction & Municipal Tax

3.5% Top Rate • $250K Business Income Deduction • Municipal Tax 1-3% • SS Exempt • No Estate Tax
Ohio R.C. §5747.02Ohio R.C. §5747.01(A)(31)Ohio R.C. §718
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Ohio's state income tax has a relatively low top rate of 3.5% on income above $115,300, and self-employed individuals and business owners benefit from the Ohio Business Income Deduction - the first $250,000 of business income is completely exempt from Ohio income tax, and income above $250,000 is taxed at a flat 3% business income rate rather than the graduated rates. However, Ohio's municipal income tax system adds a meaningful additional layer: virtually every Ohio city and most townships impose a municipal income tax ranging from 1% to 3%, and individuals must file municipal returns separately from the state return.

Ohio 2026 Key Numbers

Income tax rates: $0 - $26,050: 0%. $26,051 - $100,000: 2.75%. $100,001 - $115,300: 3.226%. Over $115,300: 3.5%.

Business Income Deduction: First $250,000 of business income exempt from Ohio income tax. Income above $250,000 taxed at flat 3% rate (not graduated rates).

Social Security: Fully exempt from Ohio income tax.

Municipal tax: All Ohio municipalities may levy income tax on wages and business income. Rates typically 1% to 3%. Columbus: 2.5%. Cleveland: 2.5%. Cincinnati: 1.8%. Must file municipal return separately.

Estate tax: Ohio repealed its estate tax effective January 1, 2013. No Ohio estate or inheritance tax.

The Business Income Deduction: Key Planning Tool

Ohio's Business Income Deduction (BID) is one of the most generous small business tax incentives of any state. Business income from a sole proprietorship, partnership, LLC, S-corp, or trust reported on the Ohio individual return qualifies. The first $250,000 of qualifying business income is entirely exempt - zero Ohio income tax. Business income above $250,000 is taxed at the flat 3% business income rate rather than the graduated rates that top out at 3.5%. A business owner with $400,000 of business income pays: $0 on the first $250,000 and 3% on $150,000 ($4,500) - an effective Ohio state income tax rate of 1.125% on the full $400,000.

Ohio municipal income taxes are a significant compliance burden for Ohio businesses and mobile workers. An employee who works in multiple Ohio cities in a year may owe municipal tax to multiple municipalities. The municipal return is separate from the state return and filed directly with each city's tax department. Many Ohio municipalities have different definitions of taxable income, different filing deadlines, and different penalties than the state. Ohio's Municipal Net Profit Tax (MNPT) provides a centralized filing option for businesses.
Related Topics
State & Compliance HubAll state tax topics §199A QBI DeductionFederal QBI deduction - compare to Ohio's state BID SE Tax GuideOhio BID reduces state tax on self-employment income No Income Tax StatesCompare Ohio 3.5% plus municipal tax to zero-tax states OBBBA State ConformityOhio conformity to federal OBBBA changes SALT PlanningOhio PTET election for pass-through entities
Authority: Ohio R.C. §5747.02 (Ohio income tax rates - graduated rates from 0% to 3.5%; brackets indexed for inflation; top rate on income above $115,300); Ohio R.C. §5747.01(A)(31) and §5747.01(B)(5) (Business Income Deduction - qualifying business income from sole proprietorships, partnerships, S-corps, LLCs, trusts; first $250,000 deductible; income above $250,000 subject to 3% flat rate rather than graduated rates); Ohio R.C. §5747.01(A)(13) (Social Security exclusion - Social Security benefits exempt from Ohio adjusted gross income); Ohio R.C. §718 (Ohio municipal income tax - authority for municipalities to levy income tax; optional centralized filing through state); Ohio H.B. 153 (2011) (Ohio estate tax repealed effective January 1, 2013 - no Ohio estate or inheritance tax on decedents dying on or after January 1, 2013).