Personal Income & School District Income Tax Updates
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Presented By:
Sara Caldwell & Reagan Lewis
November 17, 2022
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The information presented in this presentation is
accurate as of the date of the presentation. Any
legislative or legal changes that take place after the date
of this presentation may change the accuracy of this
content. Additionally, changes to facts and circumstances
may impact any answer provided herein. Please contact
the Department directly with any questions:
–
Individual Income Tax - (800) 282-1780
–
Business Tax - (888) 405-4039
2
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2022 Legislative Changes
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Inflation Adjustments
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Rule Update
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Changes for 2023 and Beyond
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Form Updates
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Filing Season Reminders
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Vocational Jobs Credit- Sub. S.B. 166
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Available to employers who employ eligible employees in a
work-based learning experience, internship, or cooperative
education program
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Credit is available to IT 1040, IT 1041, and IT 4708 filers
•
PTE investors can claim their share of the credit
•
Credit equals the lesser of (a) 15% of the eligible
compensation during the calendar year or (b) $5,000 per
eligible employee (subject to limitations)
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Credit is
nonrefundable
and is not subject to carryforward
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R.C. 5747.98 – Credit is 12
th
in order
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Vocational Jobs Credit (cont.)
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“Eligible employee” means an employee who is 19 or younger
and enrolled in an approved career-technical education
program
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“Eligible compensation” means Ohio compensation paid on or
after the effective date of the credit
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Credit program administered by Ohio Department of
Education
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Employer must apply for a certificate showing the amount of
compensation paid to eligible employees during the tax year
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The Department of Education will issue a certificate showing the
amount of credit available
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R.C. 5747.01(B) defined “business income” as:
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Income, including gain or loss, arising from transactions,
activities, and sources in the regular course of a trade or
business
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Income, gain, or loss from real property, tangible property, and
intangible property if the acquisition, rental, management, and
disposition of the property constitute integral parts of the
regular course of a trade or business operation
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Income, including gain or loss, from a partial or complete
liquidation of a business, including, but not limited to, gain or
loss from the sale or other disposition of goodwill.
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This definition, along with
Corrigan v. Testa
and
Kemppel v.
Zaino
, was used by the Department in reviewing capital gains
reported as business income on the Ohio IT BUS.
•
In response to the application of the law as written and the
Supreme Court of Ohio’s language in Corrigan and Kemppel,
the Ohio General Assembly passed H.B. 515 to “clarify” R.C.
5747.01(B)
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Ohio legislature stated the amendment was a “remedial
measure intended to clarify existing law”
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Change is applicable to any pending appeal or refund
application, or to anything subject to audit going forward
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Business income now expressly includes:
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Income, including gain or loss, from…
the sale of an equity or
ownership interest in a business
.
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Statute defines “sale of an equity or ownership interest in a
business” to include either:
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A sale
treated for federal income tax purposes
as the
sale of
assets
;
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Where the seller
materially participated
in the activities of the
business during the
year of the sale
or any of the
5 preceding
tax years
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A sale treated for federal income tax purposes as the sale of
assets
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Phrase is not defined by Ohio law
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Most likely addresses situations where sale of stock is deemed
an asset sale (either by election or IRC requirement)
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E.g., IRC 338 and 741
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Taxpayers will need to show their sale was a deemed asset sale
to meet this requirement
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Sales of an ownership interest in a business where the seller
materially participated in the activities of the business
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“Materially participate” has the same meaning as in 26 C.F.R.
1.469-5T
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Seller must meet one or more of these requirements in the year
of the sale or in one of the 5 preceding tax years
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Taxpayers will need to show they meet one of the 6 tests (or the
catch-all) to meet this requirement
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Examples of material participation
1.
More than 500 hours of participation in the business during the
tax year;
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Examples of material participation (cont.)
2.
Substantially all of the participation in the business of all
individuals during the tax year;
3.
More than 100 hours of participation in the business during the
tax year, and such participation is not less than the participation
of any other individual during the tax year;
4.
Significant participation activity for the tax year, and the
individual's aggregate participation in all significant
participation activities during the tax year exceeds 500 hours;
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Examples of material participation (cont.)
5.
Material participation in the business for any 5 tax years during
the 10 tax years that immediately precede the tax year at issue;
6.
Material participation in a “personal service activity” for any 3
tax years preceding the tax year; OR
7.
Based on all of the facts and circumstances, the individual
participates in the business on a regular, continuous, and
substantial basis during the tax year
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The Department continues to review its appeals to find cases
impacted by this clarification
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Goal is to ensure those who filed appeals are:
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Aware of the law change; and
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Have the opportunity to provide evidence related to the change
•
Your patience is appreciated as the Department processes this
new law and its impact
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R.C. 5747.08(A) covers the filing of a deceased taxpayer’s
return:
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“If an individual is deceased, any return or notice required of
that individual… shall be made and filed by that decedent's
executor, administrator, or other person charged with the
property of that decedent”
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However, this section doesn’t mention what to do with any
refund the taxpayer is owed
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R.C. 5747.11(B) states, in part:
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“On filing of the refund application, the commissioner shall
determine the amount of refund due and… certify such amount
to the director of budget and management and treasurer of
state for payment…. Payment shall be made as provided in” R.C.
126.35(C)
•
R.C. 126.35(C) states, in part:
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“…payments from the state treasury shall be made by paper
warrants, electronic funds transfers, or by direct deposit payable
to the respective
payees
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Neither statute addresses what to do when the “payee” is
deceased
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IRS has Form 1310 (Statement of Person Claiming Refund Due
a Deceased Taxpayer)
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S.B. 231 enacted R.C. 5747.11(B)(2) to address this issue for
Ohio:
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If an individual is deceased, a refund may be issued in the name
of the decedent and of the executor, administrator, or other
person charged with the decedent's property, upon request
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Opportunity Zone Investment Credit - Credit based on funds
invested in Ohio-designated opportunity zones
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Credit was capped at $50m per biennium; will transition to an
annual limit:
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July 2021-June 2023 biennium cap is $75m
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FY 2024 cap is $50m
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Annual cap of $25m per fiscal year for FY 2025 and forward
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$2m cap per recipient per fiscal biennium is unchanged
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Application period changed
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Was January 1 to February 1 each year
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Changed to January 10 to February 1
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Adds additional application period of July 10 to August 1
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Opportunity Zone Investment Credit (cont.)
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Transfer of unclaimed credits
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No limit on number of times credit can be transferred (was limited to a
single transfer)
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Allows portions of the credit to be transferred to multiple transferees
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Department of Taxation
must
be notified of each transfer
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Credit can now be granted to a person not subject to Ohio
income tax
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Recipient can then transfer the credit to another person
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More details (including required documentation for transfers)
available at
tax.ohio.gov/FAQ
under the “Income – Business
Credits” category
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Historic Preservation Tax Credit
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The bill modified the total amount of credits for FY 2023 and FY
2024 from $60m to $120m
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Cap then reverts to $60m for FY 2025 and forward
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Temporary credit enhancements
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New PTE Form: IT 4738 Electing Pass-Through Entity Income
Tax return
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Owners of a PTE that files the new IT 4738 form can claim a
refundable credit for their proportionate share of the tax paid
by the entity
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Claimed on the existing “pass-through entity credit” line on the Schedule
of Credits
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Such taxes must be added back in the calculation of Ohio
adjusted gross income
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Added using the existing “Ohio pass-through entity taxes excluded from
federal adjusted gross income” line on the Schedule of Adjustments
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Generally, income taxes paid by an individual to another state
or the District of Columbia, including amounts paid by a PTE
on behalf of its investors on a composite income tax return,
are eligible for the Ohio resident credit.
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Any taxes paid that are directly or indirectly deducted, or are
required to be deducted, in computing the investor’s federal
adjusted gross income are
not
eligible for the Ohio resident
credit.
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Taxes paid by a PTE as part of a workaround for the federal
state and local tax (SALT) deduction limitation will not qualify
for the Ohio resident credit.
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For reference, see R.C. 5747.05(B)(4)(a)
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The income tax brackets have been indexed for inflation
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Personal exemptions will
not
be indexed for inflation for 2022
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Indexing will resume for 2023
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Income tax refunds are subject to offset for certain debts as
provided for in the Ohio Revised Code, including:
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R.C. 5747.12 – state tax debt
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R.C. 5747.121 – overdue child support
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R.C. 5747.122 – public assistance
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R.C. 5747.123 – overpaid child support
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“Liable Spouse” – a taxpayer on a jointly filed return who is
liable for a debt under Ohio Revised Code Sections 5747.12,
5747.121, 5747.122 or 5747.123.
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“Non-liable spouse” – a taxpayer on a jointly filed return who
is not liable for a debt under those sections.
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Burden is on the taxpayers
on joint returns to prove that
a portion of the refund is not
subject to offset
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Department will notify
taxpayers and provide
twenty-one days to respond
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Non-liable spouse worksheet
allows taxpayers to prove
portion of the refund is not
subject to offset
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Existing rule required the
taxpayers to make the
calculation with review by the
Department
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Proposed rule updates allow the Department to calculate the
portion of the refund subject to offset upon the taxpayer’s
request
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The Department must agree to make the calculation
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Rule filed with JCARR in September
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House Bill 29 was passed on December 8, 2021, and effective
on March 23, 2022
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The bill legalizes and regulates sports gaming in Ohio
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Ohio Casino Control Commission has announced a universal
start date of January 1, 2023
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House Bill 29 amended R.C. 5747.02 and subjected sports
gaming winnings to the individual income tax in Ohio
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All winnings earned from sports gaming conducted in Ohio
and included in adjusted gross income must be reported and
allocated to Ohio regardless of whether the taxpayer is a
resident of Ohio or another state
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Ohio withholding at a 4% rate is required if a person’s sports
gaming winnings are an amount for which reporting to the
Internal Revenue Service is required by IRC 6041
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Sports gaming winnings are taxable in Ohio regardless of
whether withholding is required
•
See R.C. 5747.063 and 5747.064
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Two
new credits available beginning in
tax year 2023
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Credit for beginning farmers who participate in a financial
management program
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Credit for specified sales or rental of agricultural assets to
beginning farmers
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Both credits will be administered by the Ohio Department of
Agriculture (ODA)
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Farmer must be certified as a “beginning farmer” by either ODA
or a “participating land grant college”
OR
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Receive a substantially equivalent certification from the US
Department of Agriculture
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Certification is valid until the requirements of being a
“beginning farmer” are no longer met
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Who is a “beginning farmer”?
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An individual who meets the certification criteria;
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Who has been certified as a beginning farmer;
AND
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Who continues to meet the certification criteria
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Certification criteria (11 items)
1.
Be an Ohio resident
2.
Entered farming within the last ten years, or be seeking entry
into farming
3.
Farm, or intent to farm, land in Ohio
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Certification criteria (11 items, cont.)
4.
Not be a partner, member, shareholder, or trustee of the owner
of the agricultural assets the individual is seeking to purchase
or rent
5.
Have a total net worth, including the assets and liabilities of the
individual’s spouse and dependents, of less than $800,000
•
Will be indexed for inflation
6.
Provide the majority of the day-to-day physical labor for and
management of the farm
7.
Have adequate farming experience or demonstrate knowledge
in the type of farming for which the individual seeks assistance
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Certification criteria (11 items, cont.)
8.
Submit projected earnings statements and demonstrate a profit
potential
9.
Demonstrate that farming will be a significant source of income
for the individual
37
10.
Participate in an approved financial management program
AND
11.
Meet any other requirements prescribed by the Ohio Director
of Agriculture
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Credit for beginning farmers who participate in a financial
management program
•
Credit equals the cost of participating in an approved financial
management program
•
Must have a certificate from ODA
•
Credit is nonrefundable and has a 3-year carryforward period
•
Credit is 16
th
in order, immediately after the enterprise zone credit
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Credit for specified sales or rental of agricultural assets to
beginning farmers
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Credit for the owner of assets, not the beginning farmer
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“Agricultural asset” includes land, livestock, facilities, buildings, and machinery
used for agricultural production in Ohio
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Sale must occur during the calendar year
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Rental must occur during the calendar year or either of the 2 preceding years
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Asset must be rented at “prevailing community rates”
•
Credit equals 3.99% of:
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The sale price of the asset;
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The gross rental income received during the calendar year pursuant to a rental
agreement,
OR
–
The gross rental income received during the taxable year pursuant to a share
rent agreement
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Credit for specified sales or rental of agricultural assets to
beginning farmers (cont.)
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Must have a certificate from ODA
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Credit is nonrefundable and has a 7-year carryforward period
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Credit is 17
th
in order, immediately before the grape production
credit
Limitations on both beginning farmers credits
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Credits are only available for 5 calendar years
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Total amount available for both credits is $10m
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Programs end once $10m in certificates have been issued, even if prior to the
5-year limit
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Two new deductions
relating to capital gains for investing in
Ohio will be available on the 2026 IT 1040:
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Venture Capital Operating Company Deduction
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Deduction for taxpayers who invest in Ohio venture capital
operating companies
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Program will be administered by Department of Development
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Sale of Business Deduction
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Deduction for certain taxpayers who sell their interest in an Ohio
business that creates jobs in Ohio
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Only available to taxpayers who “materially participate” in the
business for at least 5 years or who make a “venture capital
investment”
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Neither deduction impacts current or prior Ohio tax returns
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Additional guidance will be provided at a later date
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Added line for new vocational job credit
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As new credits continue to be passed, more room will be
needed on the Schedule of Credits
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Two new credits for 2023 have already been passed
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The Ohio resident credit calculation is being moved off the
Schedule of Credits to the IT RC
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Other credits require a calculation that isn’t done directly on the
schedule (lump sum, displaced worker credits)
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Resident credit is claimed on approximately 1% of returns
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2021 Schedule of Credits:
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2022 Schedule of Credits:
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2022 IT RC:
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2022 IT RC:
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Department working with software developers to support
form IT RC
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The “hard-coded” cents have been removed from all forms
2021:
2022:
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Requested by Department’s data capture division to reduce
errors
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Department will monitor 2022 filing season for potential
issues with the change
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Reminder: school district income tax is based on where
income is received
while a resident
, not on where income is
earned
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Use
tax.ohio.gov/Finder
or property records with the county
auditor’s office to determine residency
•
Pay attention to city income tax withholding vs. school district
income tax withholding
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SD tax should be reported on W-2s with the 4-digit SD #
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Department continues to work with employers to consistently
use the 4-digit SD #
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An “R” in the locality name is
not
SD tax but likely indicates city
income tax administered by RITA
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Taxpayers who live in and receive income in multiple taxing
districts
must
file a separate, part-year resident SD 100 for
each
taxing school district
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Report only the income received while living in the SD # on the
return and only the tax withheld for that district
•
Taxpayers who have school district tax withheld for a district
they did not live in
must
file a separate, nonresident SD 100 to
request a refund
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Report no income and only the tax withheld for the SD # on the
return
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Sign up to receive periodic email notices from the Department
–
tax.ohio.gov/taxalerts
•
Electronically provide documentation requested by the
Department through the secure Online Notice Response
Service
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tax.ohio.gov/response
•
Pay Ohio individual and school district tax without creating an
account using the Guest Payment Service
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tax.ohio.gov/pay
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Paper refund checks must be cashed within 90 days of
issuance
Q
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s
t
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n
s
?
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Personal & School District Income Tax
1-800-282-1780
•
Taxpayer Services
•
General Information
1-855-728-1055
•
Tax Practitioners
53
Presented by Sara Caldwell and Reagan Lewis on November 17, 2022, this presentation covers legislative changes, form updates, and credits such as the Vocational Jobs Credit. Key points include eligibility criteria for the credit, Ohio's business income definition, and more.
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Presentation Transcript
Personal Income & School District Income Tax Updates Presented By: Sara Caldwell & Reagan Lewis November 17, 2022
Important The information presented in this presentation is accurate as of the date of the presentation. Any legislative or legal changes that take place after the date of this presentation may change the accuracy of this content. Additionally, changes to facts and circumstances may impact any answer provided herein. Please contact the Department directly with any questions: Individual Income Tax - (800) 282-1780 Business Tax - (888) 405-4039 2
Overview 2022 Legislative Changes Inflation Adjustments Rule Update Changes for 2023 and Beyond Form Updates Filing Season Reminders 3
New Credit Vocational Jobs Credit- Sub. S.B. 166 Available to employers who employ eligible employees in a work-based learning experience, internship, or cooperative education program Credit is available to IT 1040, IT 1041, and IT 4708 filers PTE investors can claim their share of the credit Credit equals the lesser of (a) 15% of the eligible compensation during the calendar year or (b) $5,000 per eligible employee (subject to limitations) Credit is nonrefundable and is not subject to carryforward R.C. 5747.98 Credit is 12th in order 5
New Credit Vocational Jobs Credit (cont.) Eligible employee means an employee who is 19 or younger and enrolled in an approved career-technical education program Eligible compensation means Ohio compensation paid on or after the effective date of the credit Credit program administered by Ohio Department of Education Employer must apply for a certificate showing the amount of compensation paid to eligible employees during the tax year The Department of Education will issue a certificate showing the amount of credit available 6
Clarification of Ohios Business Income Definition R.C. 5747.01(B) defined business income as: Income, including gain or loss, arising from transactions, activities, and sources in the regular course of a trade or business Income, gain, or loss from real property, tangible property, and intangible property if the acquisition, rental, management, and disposition of the property constitute integral parts of the regular course of a trade or business operation Income, including gain or loss, from a partial or complete liquidation of a business, including, but not limited to, gain or loss from the sale or other disposition of goodwill. 7
Capital Gains as Business Income This definition, along with Corrigan v. Testa and Kemppel v. Zaino, was used by the Department in reviewing capital gains reported as business income on the Ohio IT BUS. In response to the application of the law as written and the Supreme Court of Ohio s language in Corrigan and Kemppel, the Ohio General Assembly passed H.B. 515 to clarify R.C. 5747.01(B) Ohio legislature stated the amendment was a remedial measure intended to clarify existing law Change is applicable to any pending appeal or refund application, or to anything subject to audit going forward 8
Clarified Business Income Definition Business income now expressly includes: Income, including gain or loss, from the sale of an equity or ownership interest in a business. Statute defines sale of an equity or ownership interest in a business to include either: A sale treated for federal income tax purposes as the sale of assets; Where the seller materially participated in the activities of the business during the year of the sale or any of the 5 preceding tax years 9
Sale Treated as the Sale of Assets A sale treated for federal income tax purposes as the sale of assets Phrase is not defined by Ohio law Most likely addresses situations where sale of stock is deemed an asset sale (either by election or IRC requirement) E.g., IRC 338 and 741 Taxpayers will need to show their sale was a deemed asset sale to meet this requirement 10
Material Participation Sales of an ownership interest in a business where the seller materially participated in the activities of the business Materially participate has the same meaning as in 26 C.F.R. 1.469-5T Seller must meet one or more of these requirements in the year of the sale or in one of the 5 preceding tax years Taxpayers will need to show they meet one of the 6 tests (or the catch-all) to meet this requirement Examples of material participation 1. More than 500 hours of participation in the business during the tax year; 11
Material Participation Examples of material participation (cont.) 2. Substantially all of the participation in the business of all individuals during the tax year; 3. More than 100 hours of participation in the business during the tax year, and such participation is not less than the participation of any other individual during the tax year; 4. Significant participation activity for the tax year, and the individual's aggregate participation in all significant participation activities during the tax year exceeds 500 hours; 12
Material Participation Examples of material participation (cont.) 5. Material participation in the business for any 5 tax years during the 10 tax years that immediately precede the tax year at issue; 6. Material participation in a personal service activity for any 3 tax years preceding the tax year; OR 7. Based on all of the facts and circumstances, the individual participates in the business on a regular, continuous, and substantial basis during the tax year 13
Cases on Appeal The Department continues to review its appeals to find cases impacted by this clarification Goal is to ensure those who filed appeals are: Aware of the law change; and Have the opportunity to provide evidence related to the change Your patience is appreciated as the Department processes this new law and its impact 14
Authorize Refunds to Deceased Taxpayer s Fiduciary R.C. 5747.08(A) covers the filing of a deceased taxpayer s return: If an individual is deceased, any return or notice required of that individual shall be made and filed by that decedent's executor, administrator, or other person charged with the property of that decedent However, this section doesn t mention what to do with any refund the taxpayer is owed 15
Authorize Refunds to Deceased Taxpayer s Fiduciary R.C. 5747.11(B) states, in part: On filing of the refund application, the commissioner shall determine the amount of refund due and certify such amount to the director of budget and management and treasurer of state for payment . Payment shall be made as provided in R.C. 126.35(C) R.C. 126.35(C) states, in part: payments from the state treasury shall be made by paper warrants, electronic funds transfers, or by direct deposit payable to the respective payees. 16
Authorize Refunds to Deceased Taxpayer s Fiduciary Neither statute addresses what to do when the payee is deceased IRS has Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer) S.B. 231 enacted R.C. 5747.11(B)(2) to address this issue for Ohio: If an individual is deceased, a refund may be issued in the name of the decedent and of the executor, administrator, or other person charged with the decedent's property, upon request 17
Opportunity Zone & Historic Preservation Credits SB 225 Opportunity Zone Investment Credit - Credit based on funds invested in Ohio-designated opportunity zones Credit was capped at $50m per biennium; will transition to an annual limit: July 2021-June 2023 biennium cap is $75m FY 2024 cap is $50m Annual cap of $25m per fiscal year for FY 2025 and forward $2m cap per recipient per fiscal biennium is unchanged Application period changed Was January 1 to February 1 each year Changed to January 10 to February 1 Adds additional application period of July 10 to August 1 18
Opportunity Zone & Historic Preservation Credits SB 225 Opportunity Zone Investment Credit (cont.) Transfer of unclaimed credits No limit on number of times credit can be transferred (was limited to a single transfer) Allows portions of the credit to be transferred to multiple transferees Department of Taxation must be notified of each transfer Credit can now be granted to a person not subject to Ohio income tax Recipient can then transfer the credit to another person More details (including required documentation for transfers) available at tax.ohio.gov/FAQunder the Income Business Credits category 19
Opportunity Zone & Historic Preservation Credits SB 225 Historic Preservation Tax Credit The bill modified the total amount of credits for FY 2023 and FY 2024 from $60m to $120m Cap then reverts to $60m for FY 2025 and forward Temporary credit enhancements 20
PTE SALT Cap Legislation New PTE Form, Addition, and Credit New PTE Form: IT 4738 Electing Pass-Through Entity Income Tax return Owners of a PTE that files the new IT 4738 form can claim a refundable credit for their proportionate share of the tax paid by the entity Claimed on the existing pass-through entity credit line on the Schedule of Credits Such taxes must be added back in the calculation of Ohio adjusted gross income Added using the existing Ohio pass-through entity taxes excluded from federal adjusted gross income line on the Schedule of Adjustments 21
PTE SALT Cap Legislation Ohios Resident Credit Generally, income taxes paid by an individual to another state or the District of Columbia, including amounts paid by a PTE on behalf of its investors on a composite income tax return, are eligible for the Ohio resident credit. Any taxes paid that are directly or indirectly deducted, or are required to be deducted, in computing the investor s federal adjusted gross income are not eligible for the Ohio resident credit. 22
PTE SALT Cap Legislation Ohios Resident Credit Taxes paid by a PTE as part of a workaround for the federal state and local tax (SALT) deduction limitation will not qualify for the Ohio resident credit. For reference, see R.C. 5747.05(B)(4)(a) 23
Inflation Adjustments The income tax brackets have been indexed for inflation Personal exemptions will not be indexed for inflation for 2022 Indexing will resume for 2023 24
Income Tax Refund Offsets Rule Update OAC 5703-7-13 Income tax refunds are subject to offset for certain debts as provided for in the Ohio Revised Code, including: R.C. 5747.12 state tax debt R.C. 5747.121 overdue child support R.C. 5747.122 public assistance R.C. 5747.123 overpaid child support 25
Income Tax Refund Offsets Rule Update OAC 5703-7-13 Liable Spouse a taxpayer on a jointly filed return who is liable for a debt under Ohio Revised Code Sections 5747.12, 5747.121, 5747.122 or 5747.123. Non-liable spouse a taxpayer on a jointly filed return who is not liable for a debt under those sections. 26
Income Tax Refund Offsets Rule Update OAC 5703-7-13 Burden is on the taxpayers on joint returns to prove that a portion of the refund is not subject to offset Department will notify taxpayers and provide twenty-one days to respond 27
Income Tax Refund Offsets Rule Update OAC 5703-7-13 Non-liable spouse worksheet allows taxpayers to prove portion of the refund is not subject to offset Existing rule required the taxpayers to make the calculation with review by the Department 28
Income Tax Refund Offsets Rule Update OAC 5703-7-13 Proposed rule updates allow the Department to calculate the portion of the refund subject to offset upon the taxpayer s request The Department must agree to make the calculation Rule filed with JCARR in September 29
Sports Gaming Income Tax and Withholding House Bill 29 was passed on December 8, 2021, and effective on March 23, 2022 The bill legalizes and regulates sports gaming in Ohio Ohio Casino Control Commission has announced a universal start date of January 1, 2023 31
Sports Gaming Income Tax and Withholding House Bill 29 amended R.C. 5747.02 and subjected sports gaming winnings to the individual income tax in Ohio All winnings earned from sports gaming conducted in Ohio and included in adjusted gross income must be reported and allocated to Ohio regardless of whether the taxpayer is a resident of Ohio or another state 32
Sports Gaming Income Tax and Withholding Ohio withholding at a 4% rate is required if a person s sports gaming winnings are an amount for which reporting to the Internal Revenue Service is required by IRC 6041 Sports gaming winnings are taxable in Ohio regardless of whether withholding is required See R.C. 5747.063 and 5747.064 33
Beginning Farmers Credits H.B. 95 Two new credits available beginning in tax year 2023 Credit for beginning farmers who participate in a financial management program Credit for specified sales or rental of agricultural assets to beginning farmers Both credits will be administered by the Ohio Department of Agriculture (ODA) Farmer must be certified as a beginning farmer by either ODA or a participating land grant college OR Receive a substantially equivalent certification from the US Department of Agriculture 34
Beginning Farmers Credits H.B. 95 Certification is valid until the requirements of being a beginning farmer are no longer met Who is a beginning farmer ? An individual who meets the certification criteria; Who has been certified as a beginning farmer; AND Who continues to meet the certification criteria Certification criteria (11 items) 1. Be an Ohio resident 2. Entered farming within the last ten years, or be seeking entry into farming 3. Farm, or intent to farm, land in Ohio 35
Beginning Farmers Credits H.B. 95 Certification criteria (11 items, cont.) 4. Not be a partner, member, shareholder, or trustee of the owner of the agricultural assets the individual is seeking to purchase or rent 5. Have a total net worth, including the assets and liabilities of the individual s spouse and dependents, of less than $800,000 Will be indexed for inflation 6. Provide the majority of the day-to-day physical labor for and management of the farm 7. Have adequate farming experience or demonstrate knowledge in the type of farming for which the individual seeks assistance 36
Beginning Farmers Credits H.B. 95 Certification criteria (11 items, cont.) 8. Submit projected earnings statements and demonstrate a profit potential 9. Demonstrate that farming will be a significant source of income for the individual 10. Participate in an approved financial management program AND 11. Meet any other requirements prescribed by the Ohio Director of Agriculture 37
Beginning Farmers Credits H.B. 95 Credit for beginning farmers who participate in a financial management program Credit equals the cost of participating in an approved financial management program Must have a certificate from ODA Credit is nonrefundable and has a 3-year carryforward period Credit is 16th in order, immediately after the enterprise zone credit 38
Beginning Farmers Credits H.B. 95 Credit for specified sales or rental of agricultural assets to beginning farmers Credit for the owner of assets, not the beginning farmer Agricultural asset includes land, livestock, facilities, buildings, and machinery used for agricultural production in Ohio Sale must occur during the calendar year Rental must occur during the calendar year or either of the 2 preceding years Asset must be rented at prevailing community rates Credit equals 3.99% of: The sale price of the asset; The gross rental income received during the calendar year pursuant to a rental agreement, OR The gross rental income received during the taxable year pursuant to a share rent agreement 39
Beginning Farmers Credits H.B. 95 Credit for specified sales or rental of agricultural assets to beginning farmers (cont.) Must have a certificate from ODA Credit is nonrefundable and has a 7-year carryforward period Credit is 17th in order, immediately before the grape production credit Limitations on both beginning farmers credits Credits are only available for 5 calendar years Total amount available for both credits is $10m Programs end once $10m in certificates have been issued, even if prior to the 5-year limit 40
Tax Year 2026 Changes Two new deductions relating to capital gains for investing in Ohio will be available on the 2026 IT 1040: Venture Capital Operating Company Deduction Deduction for taxpayers who invest in Ohio venture capital operating companies Program will be administered by Department of Development Sale of Business Deduction Deduction for certain taxpayers who sell their interest in an Ohio business that creates jobs in Ohio Only available to taxpayers who materially participate in the business for at least 5 years or who make a venture capital investment Neither deduction impacts current or prior Ohio tax returns Additional guidance will be provided at a later date 41
Form Updates 42
New Credit Line Added line for new vocational job credit 43
Resident Credit Calculation Change As new credits continue to be passed, more room will be needed on the Schedule of Credits Two new credits for 2023 have already been passed The Ohio resident credit calculation is being moved off the Schedule of Credits to the IT RC Other credits require a calculation that isn t done directly on the schedule (lump sum, displaced worker credits) Resident credit is claimed on approximately 1% of returns 44
Resident Credit Calculation Change 2021 Schedule of Credits: 2022 Schedule of Credits: 45
Resident Credit Calculation Change 2022 IT RC: 46
Resident Credit Calculation Change 2022 IT RC: Department working with software developers to support form IT RC 47
Cents Removed on All Forms The hard-coded cents have been removed from all forms 2021: 2022: Requested by Department s data capture division to reduce errors Department will monitor 2022 filing season for potential issues with the change 48
School District Income Tax Reminder: school district income tax is based on where income is received while a resident, not on where income is earned Use tax.ohio.gov/Finder or property records with the county auditor s office to determine residency Pay attention to city income tax withholding vs. school district income tax withholding SD tax should be reported on W-2s with the 4-digit SD # Department continues to work with employers to consistently use the 4-digit SD # An R in the locality name is not SD tax but likely indicates city income tax administered by RITA 50
