What is new in Ohio for 2026: the 2.75% flat rate, and what the federal law did not change

For taxable years beginning in 2026, Ohio taxes nonbusiness income over $26,050 at $332 plus 2.75% of the excess. That is the whole rate table. The 3.125% bracket that applied above $100,000 in 2025 is gone, and with it the last of the bracket schedule Ohio has been shortening since 2005. The first $26,050 of Ohio taxable income is still taxed at zero, so Ohio’s “flat tax” is really a two-step tax, and for the household under $100,000 the change is worth $10. The other news is what did not happen: none of the 2025 federal deductions for tips, overtime, seniors or car-loan interest reach the Ohio return, because Ohio starts from federal adjusted gross income and those deductions come off after it. The 2026 Ohio return will look very much like the 2025 one, with a lower rate on the top, a lower cliff at the top, and one credit missing.

Two bills did the work. House Bill 96, the state budget signed June 30, 2025, set the 2.75% rate, froze the brackets and exemptions for two years, moved the exemption cliff from $750,000 to $500,000, repealed the campaign contribution credit, and changed the withholding rate on gambling winnings. Senate Bill 9, signed March 5, 2026 with an emergency clause, updated Ohio’s reference to the Internal Revenue Code so the July 2025 federal act is part of Ohio law. Everything else on this page is either a delayed piece of a 2021 law or a property tax bill.

The rate: one step instead of two

The 2026 line is from R.C. 5747.02(A)(3)(c) as amended by HB 96. The Department of Taxation had not published a 2026 rate table at this writing; its own 2026 estimated payment instructions still printed the 2025 schedule, which looks like a carryover and not a decision.

The $26,050 zero bracket does not move for 2026. Ohio indexes its brackets and personal exemptions each August to the GDP deflator, but HB 96 suspended that indexing for 2025 and 2026, so the 2026 figures are the 2025 figures. Indexing resumes for 2027, when the $26,050 line and the exemption amounts should rise again.

Because the 2.75% rate already applied between $26,050 and $100,000, the saving for most households is the $10 difference between the $342 and $332 base amounts. The real beneficiaries are filers above $100,000, who were paying 3.125% on the slice over that line. At $200,000 of Ohio taxable income the change saves about $403; at $500,000, about $1,528.

The $500,000 cliff

Ohio’s personal exemptions, $2,400, $2,150 or $1,900 each depending on income (2025 figures, frozen for 2026; verify when the 2026 instructions post), and its joint filing credit, up to $650, were already denied to households with modified adjusted gross income of $750,000 or more. For 2026 the line drops to $500,000. A married couple with two children and MAGI of $499,999 claims $7,600 of exemptions and a $650 joint filing credit; at $500,000 they claim neither. The cost of crossing the line is about $859, which is a lot of tax on one dollar, and it is the only cliff on the Ohio return. A 401(k) deferral, a deductible IRA contribution or an HSA deposit that keeps federal AGI under $500,000 keeps both.

What the 2025 federal law does to the Ohio return: nothing, mostly

Ohio’s return starts with federal adjusted gross income, line 11 of Form 1040. The deductions Congress created in July 2025, for tips, for overtime pay, for people 65 and older, and for interest on car loans, are all taken after that line, next to the standard deduction. They reduce federal taxable income and never touch federal AGI. Ohio therefore never sees them, and needs no add-back, because nothing was taken out. A server with $14,000 of tips owes no federal income tax on them for 2026 and owes Ohio the full 2.75%, plus whatever the city and the school district charge. The same is true of the overtime premium, the $6,000 senior deduction and the car-loan interest.

Senate Bill 9 did not change that. What SB 9 did was move Ohio’s conformity date in R.C. 5701.11 to March 5, 2026, so that Ohio’s references to the Internal Revenue Code mean the code as it stood after the federal act. Ohio adopts the federal code as of a fixed date and has to vote to update it; SB 9 was that vote. The parts of the federal law that flow through to Ohio are the above-the-line ones: the health savings account changes, the new uses for 529 accounts, the business provisions for research expenses and interest, the rules for the new children’s accounts. Taxpayers could also elect to apply the updated code to 2025 returns. No Ohio bill has created a state deduction for tips, overtime or seniors.

The bonus depreciation rule deserves a word because the federal percentage is back at 100%. Ohio has long required a sole proprietor, landlord or farmer who claims bonus depreciation to add back five-sixths of it, then deduct one-fifth of the add-back in each of the next five years. With 100% bonus restored, the add-back is the largest it has been since 2022. Over the life of the asset Ohio allows the same total; it simply refuses to allow it all in one year. The business income deduction often makes the point academic: if the business nets under $250,000 after the add-back, Ohio tax on it is zero either way.

Withholding ran at the old rate for seven months

The Department did not issue employer withholding tables for the 2.75% rate until wages paid on and after August 1, 2026. From January through July, employers withheld under the October 1, 2025 tables. For a single-job wage earner over $100,000 that means seven months of withholding at a rate that no longer applies, and a larger Ohio refund than usual. For a household with two or three jobs the effect can run the other way: each employer withholds as if its wages were the only wages, and the zero bracket gets used more than once. See Getting withholding right for the federal side of the same problem.

Smaller changes on the 2026 return

Campaign contribution credit, gone. The $50 single, $100 joint credit for gifts to Ohio candidates (former R.C. 5747.29) is repealed for 2026. It was the only Ohio credit for a political gift.

Two new capital gains deductions. Both were written in 2021 (HB 110) with a five-year delay and begin with tax year 2026. R.C. 5747.79 deducts capital gains from an investment in a certified Ohio venture capital operating company: 100% of the gain attributable to Ohio businesses, 50% of other gains. R.C. 5747.81 deducts the gain on selling an ownership interest in an Ohio-headquartered business the seller materially participated in for five years or put at least $1 million into, capped at the business’s Ohio payroll. The mechanics and the Schedule of Adjustments lines were not yet published at this writing (verify). Few households will meet either; a business owner selling out in 2026 should ask.

Gambling withholding. Ohio withholding on lottery, casino and sports gaming winnings drops from 4% to 2.75% for 2026. Ohio still taxes gross winnings with no deduction for losses.

Carried in from 2025. The homeschool expense credit is $250 per homeschooled student rather than per return, and the Ohio educator expense deduction is $300 per K-12 educator. School district income tax no longer applies to estates. The pregnancy resource center deduction applied only to gifts made in the last quarter of 2025 and is not on the 2026 return.

Pension withholding, 2027. Beginning in 2027, a private retirement plan must withhold Ohio and school district income tax on a retiree’s request. For 2026, retirees with pension income and no withholding are still on estimated payments; see Ohio for retirees.

Property tax: the bills signed in December

None of this is on the IT 1040, but it is the tax change most Ohioans will notice. The citizen initiative to abolish property tax did not make the November 3, 2026 ballot; its sponsors missed the July 1 signature deadline and are aiming for 2027. In its shadow the legislature passed four bills, HB 186, HB 335, HB 129 and HB 309, signed December 19, 2025, that change the 2026 bills paid in 2027.

• The owner-occupancy credit rises from 2.5% of qualifying levies to 5.70% for 2026, 8.92% for 2027, 12.15% for 2028 and 15.38% from 2029, while the 10% non-business credit on every residential bill falls to 7.5% for 2026, 5% for 2027, 2.5% for 2028 and nothing from 2029. For most homeowners the two roughly offset in 2026 and favor the owner-occupant after that.
• Growth in school district revenue at the “20-mill floor” is capped at inflation, with credits on 2026 bills, and new emergency and substitute school levies are barred.
• The homestead exemption for owners 65 or older or permanently disabled is $29,700 of market value for tax year 2026 with a MAGI limit of $41,000, up from $29,000 and $40,000. The enhanced exemption for 100% service-connected disabled veterans and surviving spouses of fallen first responders is $59,400, with no income test. Apply to the county auditor on Form DTE 105A by December 31 of the year for which the exemption is sought.
• HB 96 lets counties add their own homestead and owner-occupancy reductions, so neighbors across a county line may see different relief.

Ohio also elects a governor and legislature on November 3, 2026, and both major candidates for governor have talked about cutting the income tax further or ending it. Nothing is enacted. The 2026 rules are settled; 2027 is a political question, and the indexing that resumes in 2027 is the only 2027 change written into law today.