Ohio's New Income Tax Law: What You Need to Know
Ohio has officially entered a new era of tax reform. As part of the state’s 2025–2026 budget, Governor Mike DeWine signed House Bill 96 into law on June 30, 2025. This sweeping legislation introduces a simplified flat income tax structure, reduces the top marginal tax rate, and adjusts several personal tax provisions. The changes officially took effect on July 1, 2025, aligning with the start of the state's new fiscal year.
From Brackets to Flat Rate: The Big Shift
One of the most notable changes is the move toward a flat income tax. Starting with the 2026 tax year, Ohio will eliminate its tiered tax brackets for most earners and apply a single flat rate of 2.75% on all non-business income above $26,050. This means everyone making more than that threshold will be taxed at the same rate, regardless of how much more they earn.
For the 2025 tax year—covering income earned from January through December 2025—the highest marginal tax rate drops from 3.5% to 3.125% for income above $100,000. This serves as a transitional phase before the full flat tax system is implemented the following year.
Ohioans earning $26,050 or less will continue to pay 0% in state income tax, preserving tax relief for lower-income residents.
Changes to Exemptions and Credits
In addition to rate changes, the law also adjusts eligibility for several exemptions and tax credits. Beginning in 2025, Ohio will impose income-based caps on the personal, spousal, and dependent exemptions, as well as the joint filing credit. These begin phasing out at a Modified Adjusted Gross Income (MAGI) of $750,000 for 2025, with a stricter threshold of $500,000 in 2026 and beyond.
These caps are designed to target tax relief toward middle-income earners while reducing benefits for high-income households.
Withholding and Paycheck Impacts
As of July 1, 2025, employers in Ohio are required to update their income tax withholding tables to reflect the new rates. Many workers may notice a slight increase in their take-home pay even before they file their 2025 taxes. That said, taxpayers should monitor their withholdings closely to avoid surprises when it’s time to file.
Why This Matters
Supporters of the flat tax model argue that it simplifies the tax system and makes Ohio more attractive to businesses and high-income individuals. They emphasize that the lower rate provides broad tax relief while promoting economic growth.
However, critics have raised concerns about the long-term impact on public services. The state is expected to lose an estimated $1 to $1.7 billion in revenue over the next two years.
What You Should Do Now
If you're an Ohio taxpayer, now is the time to:
- Check your paycheck to ensure your withholding has been updated correctly.
- Review your expected income for 2025 and 2026 to understand how the new rates and exemption caps may affect your bottom line.
- Talk to a tax professional if you earn more than $500,000 or are close to the exemption phase-out thresholds.
Final Thoughts
Ohio’s move to a flat income tax represents a significant policy shift aimed at tax simplification and rate reduction. While many residents will benefit from slightly lower rates and easier filing, the law may also have deeper implications for the state’s fiscal health and equity. As the changes roll out over the next two tax years, Ohioans should stay informed and plan accordingly.
Stay tuned for updates on how this policy affects specific deductions, business income, and local funding across the state.