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The tax breaks that could impact you in Kasich’s MBR bill

July 10, 2014

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Ohio Governor Kasich signed Amended Substituted House Bill 483 into law last month. This bill, referred to as the MBR bill (mid-biennial review), contains several tax breaks that could be of interest to you. Here are the details of what the bill does and how it might impact your Ohio taxes.

  • Temporary increase of the Ohio Small Business Deduction Percentage for 2014
    • Recall the Ohio Small Business Deduction (codified in O.R.C. chapter 5747) provides a deduction for owners/investors in pass through entities (PTEs). For tax year 2013, the deduction reduced taxable income by 50% of the first $250,000 of post – apportioned income for businesses organized as PTEs.
    • For 2014 ONLY, the 50% exemption increases to 75% of the first $250,000 of post – apportioned income. The maximum deduction will thus be $187,500 ($93,750 for spouses filing separately). All other provisions remain the same; we assume the Ohio SBD form will be updated to reflect the new percentage for 2014. Currently, the 75% exemption is scheduled to revert back to 50% beginning with the 2015 tax year; the exemption amounts will obviously also revert back to the 2013 levels.
    • Recall the exemption is at the individual level; so the increased exemption would apply to a calendar year taxpayer irrespective of whether the individual receives a K1 from a fiscal year entity.
  • Acceleration of the Personal Income Tax Rate Reduction
    • Kasich’s Ohio Jobs 2.0 proposal outlined a phased reduction in the Ohio personal income tax rate, with a 10% reduction slated for tax year 2015. H. B. 483 accelerates the rate reduction such that the full 10% rate reduction is implemented for tax year 2014 rather than 2015. The top marginal Ohio Tax rate will decrease to 5.333% starting with the 2014 tax year; marginal rates for individuals with Ohio AGI between 104,250 and 208,500 will drop below 5%.
  • Earned Income Tax Credit Increase
    • For low income Ohio residents, H.B. 483 increases Ohio’s earned income tax credit from 5% of the federal credit to 10% of the federal credit. Note the credit is subject to existing limitations on the maximum amount of the credit allowed.
  • Personal Exemption Increases
    • H.B. 483 increases personal exemption amounts, with the greatest increase realized by the lower income tax brackets; specifically, personal income tax exemption amounts will be as follows:
      • $1,700 for taxpayers with OAGI greater than $80,000
      • $1,950 for taxpayers with OAGI between greater than $40,000 but less than or equal to $80,000
      • $2,200 for taxpayers with OAGI less than or equal to $40,000
  • Other Provisions of Interest
    • TIF Revenue Authorized Use – Authorizes municipal corporations to use revenue collected from Tax Increment Financing (TIF) to fund the provision of gas or electric service through privately owned facilities if doing so is needed for economic development.
    • Remission of sales tax based on prearranged agreement(R.C. 5739.05; Section 812.70). Effective November 3, 2014, the bill makes several modifications to a procedure under continuing law that the Tax Commissioner and a vendor may use to allow the vendor to remit sales tax on the basis of a prearranged agreement without keeping complete and accurate primary records of the vendor’s taxable sales (e.g., individual receipts or guest checks). Pursuant to an existing administrative rule governing prearranged vendor remittance agreements, such agreements are available only to licensed food service operations (e.g., restaurants and fast-food establishments).

A full text of the bill can be found here: http://www.legislature.state.oh.us/BillText130/130_HB_483_PS_Y.pdf

© 2014

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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