On Monday, February 2nd, Ohio Governor John Kasich released the Executive Budget for Fiscal Years 2016-2017. The Budget proposes numerous income tax cuts for small business owners and low and middle-income individual taxpayers, supported by increases in sales and use, tobacco, severance, and commercial activity taxes. The following is a summary of the proposed Ohio tax cuts and reforms:

Proposed Tax Cuts:

  • Elimination of Income Taxes for Small Businesses:  Individual taxpayers who own small businesses structured as sole proprietorships or pass through entities (i.e. partnerships, S corporations, and limited liability companies) which annually earn $2 million or less in gross receipts, would pay no tax on Ohio-sourced income derived from such businesses. Owners of sole proprietorships and pass-through entities, which annually earn greater than $2 million of gross receipts, would remain eligible to take the Ohio Small Business Investors Deduction, which allows for a 50 percent deduction of the owner’s first $250,000 of Ohio-sourced net income from business investments.


  • Reduction of Individual Income Tax Rates: Personal income tax rates would be cut for taxpayers of all income brackets by 23 percent over a two year period. Tax rates would drop 15 percent in 2015 and an additional 8 percent in 2016, with a goal top marginal rate of 4.1 percent by 2017 (currently 5.33 percent).


  • Increase in Personal Exemptions for Low and Middle-Income Taxpayers: Personal exemptions available to individual income taxpayers would increase from $2,200 to $4,000 for taxpayer earning less than $40,000 per year and from $1,950 to $2,850 for taxpayers earning between $40,000 and $80,000 per year.


  • Decrease in Annual Minimum Commercial Activity Tax (CAT): For businesses with annual gross receipts of $2 million or less, the annual minimum tax would decrease from $800 to $150.

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