With the recent signing of the Senate Bill 18 (SB 18), or the Ohio Conformity Bill, the state has made some noteworthy changes for taxpayers.
1. State Individual Extension Conformity
Ohio has postponed the filing deadline for state tax returns to May 17, 2021, following the federal government’s lead. Ohio’s automatic extension only applies to 2020 individual income tax returns and corresponding tax payments otherwise due April 15, 2021. Similar to federal relief, Ohio’s extension does not apply to first quarter estimated tax payments due on April 15, 2021.
Many Ohio municipalities, e.g., CCA, RITA, Columbus, Cincinnati, Akron, Fairlawn, have subsequently issued guidance they are following Ohio’s 2020 individual return extension. However, taxpayers should confirm the 2020 extension at each city’s website. The municipality extensions also do not apply to 2021 first quarter estimates nor 2020 Business Net Profit Returns.
2. SB 18 Impact on Ohio Income Tax Conformity
Governor DeWine signed Senate Bill 18 on March 31, 2021, bringing Ohio into conformity with the Federal Consolidated Appropriations Act and American Response Act of 2021. As such, Ohio now conforms the business and personal income tax provisions listed below.
Business Income Provisions
- 30-year depreciation period for certain residential rental property
- Temporary allowance of a full deduction for business meals
- Paycheck Protection Program (PPP) loan forgiveness not subject to income tax
- Exclusion from income of Restaurant Revitalization Fund grants and Targeted Economic Injury Disaster Loan advances
- Extension of the payment deadline for certain deferred payroll taxes
- Extension of the work opportunity tax credit
- Extension of exclusion for qualifying employer payments of student loans
- Extension of the limitation on excess business losses for noncorporate taxpayers
Personal Income Tax Provisions
- Temporary exclusion from income for the first $10,200 received in unemployment benefits
- Temporary look-back rule for determination of earned income for the earned income tax credit
- Temporary expansion in the amount/eligibility for the Earned Income Tax Credit
- Temporary increase in the amount of the child and dependent care credit
- Temporary exclusion from gross income for the discharge of student loan indebtedness
- Temporary special rules for health and dependent care flexible spending arrangements
- Extension of gross income exclusion for the discharge of indebtedness of a qualifying residence
- Extension of the temporary deduction for charitable contributions by non-itemizers
- Exclusion from income for emergency financial aid grants
- Transition of qualified tuition deduction to a Lifetime Learning Credit increased phase-out
- Clarification that the educator expense tax deduction includes expenses for personal protective equipment and other supplies related to the prevention of the spread of COVID-19
3. SB 18 Update on BWC Refunds
In 2020, the BWC issued three rounds of “dividend” checks amounting to nearly $8 billion to sustain taxpayers during 2020. In early February 2021, Ohio began mailing Form 1099-G to taxpayers classifying the payments as Grants to be recorded on Box 6 of the income tax return. As a result, taxpayers will be required to pick up these BWC payments as income on their federal and state income tax filings.
However, note that SB 18 provides an exclusion of these Ohio BWC dividend payments from taxable gross receipts for Ohio Commercial Activity Tax (CAT) purposes.
4. SB 18 Update on Forgiven PPP Loans
Congress passed the Consolidated Appropriations Act, 2021 in late December 2020. The Act provided for the full deductibility of ordinary and necessary business expenses paid with a forgiven or forgivable PPP loan. SB 18 brings Ohio into conformity with the federal income tax provisions, as such allowing Ohio taxpayers to exclude forgiven PPP and PPP2 loan proceeds from income.
SB 18 also excludes forgiven PPP2 loan proceeds from Ohio CAT taxable gross receipts. Ohio previously passed HB 481 last June exempting first draw PPP forgiven loan proceeds from Ohio CAT.
5. SB 18 Unemployment Tax Updates
SB 18 brought Ohio into conformity with the federal temporary $10,200 unemployment income exclusion for taxpayers with $150,000 or less in federal adjusted gross income (AGI) ($300,000 for joint filers). Since Ohio begins with federal AGI, no adjustment is necessary. Ohio also created several state specific provisions around unemployment taxes.
Ohio traditionally has not withheld income taxes on unemployment benefit payments, as such many taxpayers preparing their 2020 tax returns realized they owed interest and penalties on the underpayment of Ohio income tax on their benefits. SB 18 provides Tax Commission flexibility in abating underpayment interest and penalty for impacted taxpayers. SB 18 also allows taxpayers to elect to have state income tax withheld on benefit payments beginning in 2022.
6. SB 18 Update to Passthrough Entity Withholding
Ohio requires that passthrough entities must withhold income tax on distributable income to nonresident owners. The current withholding tax rates are 5% for nonresident individual owners and 8.5% for most other owners. SB 18 reduces the withholding rate to 3%, which mirrors the business income rate, for all nonresident owners beginning on or after January 1, 2023.
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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.