Ohio’s 2026 tax changes represent a structural shift rather than a routine rate tweak. The state moves to a flat individual income tax, adjusts withholding mechanics, broadens parts of the sales tax base, and phases in several property tax changes. The net effect depends on income mix, household structure, and asset ownership. Strategy matters more than ever.
The flat income tax. Simpler, not neutral.
Beginning with tax year 2026, most nonbusiness income above the zero bracket is taxed at a flat 2.75 percent rate. Lower earners often see modest relief. High earners with wage-heavy income also benefit from the lower top rate. The change removes bracket planning but elevates income composition planning. Wage income, interest, and ordinary income now face the same marginal rate once past the zero bracket. Timing income still matters. Accelerating or deferring income across years can shift liability if 2025 brackets differ from 2026 outcomes.
Business income planning remains distinct.
Ohio continues to treat qualifying business income differently through deductions and a separate rate structure. Owners should revisit entity elections, compensation mix, and distribution timing. Reasonable compensation still matters. Overpaying wages can increase payroll taxes. Underpaying can trigger compliance risk. The optimal mix is fact specific.
Withholding alignment creates cash flow opportunities.
Supplemental wage withholding aligns with the flat rate in 2026. Employees receiving bonuses should confirm withholding accuracy. Overwithholding is an interest-free loan to the state. Underwithholding creates penalties. Adjust Form IT 4 early in 2026 to reflect actual liability rather than legacy assumptions.
Credits and exemptions now have tighter income caps.
Joint filing credits and personal exemptions carry income thresholds beginning in 2026. Households near those limits should monitor modified adjusted gross income carefully. Retirement contributions, health savings accounts, and timing of capital gains can determine eligibility. Losing a credit can cost more than a marginal rate increase.
Sales tax changes reward attention to spending patterns.
Ohio broadens the sales tax base by narrowing certain exemptions. Consumers may pay tax on services that were previously exempt. Businesses should review vendor invoices and resale certificates. Improperly paid sales tax is often nonrefundable. Proper classification saves real dollars.
Vendor discounts are capped.
The prompt payment discount remains but carries a monthly cap per license. High-volume vendors should not rely on the discount as a material offset. Cash management should reflect the cap. Automation reduces errors and missed deadlines.
Property tax relief is targeted, not uniform.
Owner-occupied homes see phased-in relief through credits and rollback adjustments. Non-owner-occupied residential property follows a different path. Market value growth limits tied to inflation change future exposure but do not erase existing levies. Homeowners should review valuation notices and appeal when warranted. Small percentage errors compound quickly.
Local impacts will vary.
Local governments respond differently to state changes. Some will adjust rates. Others will pursue levies. Ohioans should not assume uniform outcomes across counties or school districts. Local review matters as much as state law.
Action steps for 2026.
Review income mix before year end. Update withholding early. Track eligibility thresholds monthly. Revisit entity structures and compensation. Audit sales tax treatment. Scrutinize property valuations. Each step is straightforward. Together they determine whether the new system works for you or against you.
This column provides general educational information based on enacted Ohio tax law changes for 2026. Individual outcomes depend on personal circumstances and future administrative guidance.
Every strategy discussed requires personalization. Ohio’s 2026 tax structure rewards preparation but penalizes assumptions. Consult a qualified Ohio tax professional before making changes. The best plan is the one that fits your facts, not the headlines.
