Ohio State Income Tax Credits

Few people actually enjoy filing their income tax return, especially if they think they might have to write a check to the IRS or the state of Ohio. A professional tax preparation service can make the process of filing your taxes much less stressful. But can anything take the sting out of having to pay your Ohio state income tax? Possibly—if you take maximum advantage of state income tax credits.

People often mix up tax credits and tax deductions, but they are very different, and tax credits are more favorable. A tax deduction reduces the amount of income on which you are taxed. For instance, if you earned $100,000, and you claimed $10,000 worth of tax deductions, you would be taxed on $90,000 of income. In other words, you would not have to pay income tax on $10,000 of your income. You don’t save $10,000, but you save whatever percentage of that income you would have had to pay in taxes.

A tax credit, on the other hand, reduces your tax liability dollar for dollar. If you owed $12,000 in taxes before claiming $10,000 in tax credits, your tax liability would drop to $2,000. In other words, you would actually save $10,000 on your taxes. It gets better: certain tax credits are refundable, meaning that if you owed $1,500 in taxes before claiming a $2,000 tax credit, your tax bill would not only be wiped out, but you would receive a refund of the $500 difference.

In short, before completing your Ohio state income tax filing, it’s worth knowing about what credits you might be able to claim. Many people are familiar with some federal tax credits, but may know less about credits that can reduce their state tax bill.

What Income Tax Credits are Available in Ohio?

There are a number of Ohio tax credits available, depending on your circumstances and income. While some credits are available to taxpayers at any income level, many tax credits are eliminated or phased out as income increases. Some of the tax credits for which you may be eligible include:

Personal and Dependent Exemption Credit

All individual filers, regardless of income level, are entitled to claim a $20 credit for each personal and dependent exemption claimed on their Ohio state income tax return.

Ohio Earned Income Tax Credit (EITC)

If you qualify for the federal EITC, you are automatically eligible for the Ohio credit, the rate of which is 30% of the federal credit. To qualify you must be a U.S. citizen or resident alien with income earned from full- or part-time work and meet income limits. You must have a Social Security Number, and your spouse must have one as well if you are married, filing jointly. You may not claim this credit if you are married, filing separately.

Child and Dependent Care Credit

This credit is available to individual taxpayers and estate filers with an income of less than $40,000. In order to take this credit, the taxpayer must have made payments for care that qualified for the federal child and dependent care credit, such as payments to a licensed daycare provider.

Adoption Credit

If you expanded your family through adoption during the tax year, you may be eligible for a tax credit for your adoption expenses, up to a cap of $1,500 per child. Unfortunately, adoption of a stepchild does not qualify for this credit.

Low Income Taxpayer Credit

Ohio taxpayers who have Ohio taxable income of $10,000 or less can claim this valuable credit, which is a full credit against state income tax that would otherwise be due.

Displaced Worker Training Credit

If you lost or left a job because your position or shift was abolished, you may be able to claim a credit against your Ohio taxes for the expense of new job training. This credit is capped at the lesser of $500 or 50% of the training expenses, which must have been incurred within 12 months of leaving your previous job.

Joint Filing Credit

This credit may be available to spouses who file their Ohio state income tax return jointly, and who each have qualifying adjusted gross income of $500 or more. This credit is capped at $650, and is calculated as a percentage of taxes due after all other credits are claimed, with the exception of resident, non-resident, part-year resident, and business credits.

Non-Resident, Resident, and Part-Year Resident Credits

Non-residents who owe Ohio income tax (for income other than Ohio lottery winnings) may be able to receive a credit if some of their income was earned and received outside the state. Ohio residents and estates are eligible for a credit against their Ohio state income tax if some or all of their income was taxed in a state other than Ohio. Taxpayers who spent only part of the year in Ohio, such as those who moved into or out of the state during the tax year, may be eligible to receive both non-resident and resident credits on some of their income.

Business Credits

There are a number of business credits available, including the one available to investors in “pass-through” entities such as an LLC or S corporation. Those taxpayers may be able to claim a refundable tax credit in the amount of tax paid on their behalf by the pass-through business entity. Consult your tax professional regarding other Ohio business tax credits that may be available to you.

Retirement Income Credit

Taxpayers (whether individual or estate) who receive annuities, retirement benefits, or distributions are part of their Ohio adjusted gross income may be able to claim a credit based on the amount of retirement income they received during the tax year, up to a maximum of $200.

Lump Sum Distribution Credit

If you are 65 years old or older, and received a lump sum distribution from a pension, retirement, or profit sharing plan, you may be eligible for this credit. The amount of the credit is calculated using the taxpayer’s expected remaining years of life, multiplied by the value of the senior citizen credit. However, if you claim this credit, you may not claim future senior citizen credits.

Senior Citizen Credit

Individual taxpayers who were at least 65 years old as of December 31 of the tax year may be able to claim a $50 credit per Ohio state income tax return. An estate may claim the senior citizen credit if the deceased was at least 65 years old when they died.

The Bottom Line

As you can see, taking advantage of available tax credits can significantly reduce your Ohio state income tax obligation; though many credits are relatively small, they can add up. Remember that your income level affects which credits you are eligible for, so consult an experienced tax professional to make sure that you are claiming every tax credit you are eligible for, without trying to claim any for which you are not. To learn more about the Ohio tax credits that are available to you, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.