Many, if not most, people are confused about city taxes in Ohio. As a California transplant, I too was mystified when I moved here. The rules are ridiculously complex, widely varying, and often not effectively administered at the municipal level, which makes it all more complicated. I’d like to take this opportunity to make it a little clearer.
Under Ohio law, incorporated cities & villages (not townships) are permitted to levy a tax on certain types of income. Most commonly taxed are wages, business income, and rents, but many cities now tax gross gambling winnings as well.
The Ohio municipal income tax is something of a hybrid in public finance terms. Call me if you want the analysis, but the short version is that here in Ohio you may pay where you work & also where you live!
Many rules vary by city, but here is a summary of Cincinnati requirements:
- Filing requirements: Most cities have a mandatory filing requirement, but Cincinnati does not. If you live and work in Cincinnati, are fully withheld and have no other taxable income, you are not required to file. However, if you have other income – a business, rental property, ownership in a partnership or Subchapter S corporation, or gambling winnings, you must file. And you will probably owe. Federal Schedule C (business income) and/or Schedule E (rental income) need to be attached to your city returns.
- Rates: Cincinnati’s tax rate is 2.1% of “Medicare wages,” box 3 on your Form W-2 (and any other income).
- Credits: You get credit for up to 2.1% that you pay to any other city, including both Kentucky city and county taxes. Of course, only a few have taxes higher than 2.1%, so you will owe the balance to Cincinnati.
- Estimated payments: If you’re not fully withheld, you are required to make quarterly estimated payments. These days, there will be penalties assessed if you have a balance due come April.
There are many complications beyond this summary. A professional can help you sort them out.
- Rental income is reportable if more than $500 a month. Net rental losses can be offset against business profit, but not against wages.
- Business profits are taxable, but losses cannot be offset against wages.
- If you’re self-employed and work in multiple cities, you are required to prorate income and pay each of them. Northern Kentucky localities have licensing requirements, as well as tax. If you have employees, you must withhold city taxes and pay them periodically to the city.
As always, an experienced, credentialed professional is your best guide to city taxes. If you receive a notice, or have outstanding returns or balances, contact a pro. We can work with the city to reduce penalties. Since Cincinnati uses the police & criminal courts to enforce city tax obligations, it is critical to keep current. Yes, they can & do arrest people for not filing, or not paying & failing to appear when summoned. It’s in your best interest to understand, comply & stay out of jail.