On June 16, 2014, Ohio Governor John Kasich signed legislation that provides a temporary increase in tax deductions for small businesses, accelerates the state’s personal income tax rollback, increases the earned income tax credit and grants a larger personal exemption for taxpayers falling under a certain threshold income level.
Highlights of the new legislation include:
1. Business Income Deduction
The existing income tax deduction for small business income is increased from 50% to 75% for a taxpayer’s taxable year beginning in 2014 only. The maximum allowable deduction is $187,500 ($93,750 for a spouse filing separately). Virtually all small businesses in Ohio are eligible for this deduction on the first $250,000 of business income.
2. Income Tax Rate Reduction
The phase-in of a 10% income tax rate reduction previously not scheduled to take full effect until 2015 has been accelerated so that the full 100% reduction applies to the 2014 taxable year and thereafter.
3. Personal Exemption Increase
The personal exemption for taxpayers whose Ohio adjusted gross income is $80,000 or less as reported on the individual or joint annual return is tiered as follows: where adjusted gross income is $40,000 or less, the exemption amount is $2,200; $40,001 to $80,000, the exemption amount is $1,950. For taxpayers reporting $80,001 or more, the exemption remains $1,700.
4. Earned Income Credit
Effective for tax year 2014 and onward, the earned income tax credit will increase from 5% of the federal earned income tax credit to 10% of the federal credit. The new rate is subject to existing limitations on the maximum amount of credit allowed.
For questions on these important new initiatives, contact a Barnes Dennig representative today.