Ohio House Bill 5 Municipal Income Tax Changes

IMPORTANT CHANGES FOR INDIVIDUALS

What is “H.B. 5”?

Ohio House Bill 5, referred to as “H.B. 5,” is legislation passed by the Ohio General Assembly that made many changes to municipal income tax, including, but not limited to, what is/is not taxable, filing requirements, thresholds and deadlines, penalty and interest rates, as well as how the tax is administered and enforced. These changes are found in Chapter 718 of the Ohio Revised Code and apply to tax years beginning on or after January 1, 2016.

Please note that tax filings and payments for tax years beginning before January 1, 2016 are subject to the ordinances and rules and regulations of each municipality as they were in effect at that time, regardless of the date of filing or payment.

How does H.B. 5 affect me?

If you have income earned/received while living or working in an Ohio municipality, the following new rules apply to you for tax year 2016 and forward. You may owe municipal income tax to both your resident municipality and workplace municipality.

What are the changes I should know about now?

Estimated Payments and Due Dates:

You are not required to make estimated payments unless your estimated tax liability for the year (after credits and withholding, if any) is $200 or more. If your estimated tax liability is less than $200, you may still declare an estimate, for which RITA will send billing statements (see Form 32-EXT, Section 3).

Estimate due dates are as follows:
1st Quarter – April 15th *
2nd Quarter – June 15th
3rd Quarter – September 15th
4th Quarter – December 15th

Please note that these due dates are the same as the IRS, with the exception of the 4th quarter, which is one (1) month earlier than the IRS deadline. If a specific due date falls on a weekend, the deadline is automatically extended to the next business day.

Penalty and interest may be imposed for late or non-payment of your estimated payments, see HB 5 Penalty and Interest Rates Changes.

* This date coincides with the annual income tax return filing deadline, and may change from year to year if the filing deadline is extended due to weekends and/or a legal holiday.

Minimum Thresholds – Filing and Refunds:

When filing a return, you are not required to remit payment if the tax due (after credits, estimated payments and withholding) is $10 or less (see Section B, Line 16 of Form 37). A return must still be filed.

Overpayments of $10 or less will not be refunded, but may be applied as a credit towards the following tax year’s estimated tax liability, if applicable.

Filing Extension:

It is not necessary to file your Federal Extension with RITA by April 15th* to extend the time to file your municipal income tax return. A copy of the Federal Extension must be provided when filing your extended return on or before October 15th.  An extension to file is not an extension to pay.

* This date coincides with the annual income tax return filing deadline, and may change from year to year if the filing deadline is extended due to weekends and/or a legal holiday.

Changes to Qualifying Wages:

Third-party sick pay is exempt from withholding and taxation.

Clergy wages that are exempt from federal FICA/Medicare withholding are required to be included in qualifying wages and are subject to tax. Please note, the housing allowance exemption remains.

Taxable Income:

Lottery, sweepstakes, gambling and sports winnings, winnings from games of chance, and prizes and awards are taxable, with no minimum thresholds.

Rules regarding the taxation of income of individuals under the age of 18, stock options and nonqualified deferred compensation are set forth in each municipality’s income tax ordinance.

There is no change to the net operating loss carryforward permitted by a municipality, if any, for tax years 2015 and 2016.

Disclaimer:

Please note that this is not an exhaustive list of changes imposed by H.B. 5 relative to individuals. This list provides for the changes that take effect in tax year 2016, and those that will impact the greatest number of individuals.