Ohio Taxes on Private Sector Bonuses
The Ohio Department of Taxation considers bonus pay from private sector sources as taxable income. The amount of tax you must pay depends on the tax rate for your income level. The state of Ohio bases your beginning income on your federal adjusted gross income, also referred to as AGI, and offers tax deductions and credits, which can reduce your state tax liability. Employers typically include bonus payments as part of your regular compensation on tax reporting documents.
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Ohio Income Rules
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If you live in Ohio and earn an income you typically must file a state income tax return. Exceptions to this rule can apply to senior citizens who earn less than the state minimum income required to file a tax return and certain retirees eligible for Ohio's retirement income credit. Other exceptions can apply to any resident whose allowable state exemption exceeds their Ohio AGI. When filing your Ohio income tax return, you must use your federal AGI as a starting point for your income.
Federal AGI
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You can determine your federal AGI by completing a federal tax return, on an Internal Revenue Service form such as a 1040. To calculate your federal AGI, you must add together all sources of income, which can include wages, work bonuses, alimony and interest. The IRS allows you to deduct certain types of expenses from your total income, such as moving costs, student loan interest and college tuition. The final amount of income after all allowable deductions equals your federal AGI, which you must use as your starting income on your Ohio income tax return.
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Form W-2
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Employers are required to send you an IRS Form W-2, which shows your earnings and tax withholdings. Line 1 of Form W-2 includes your “wages, tips, other compensation”. If you receive a regular bonus as part of your compensation, such as a bonus based on sales performance, your employer will typically include the bonus pay on Line 1 of your Form W-2. The employer must also itemize on Form W-2 any withholdings deducted from your compensation, such as federal income tax, medicare tax and social security tax. Line 1 of Form W-2 serves as the starting point for determining your federal AGI, which you must also use for your Ohio income tax return.
Form 1099-Misc
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Employers typically include bonus pay for independent contractors on IRS Form 1099-Misc. Businesses use Form 1099-Misc for a variety of payments to nonemployees, including automobile reimbursements, regular compensation or bonuses. Companies may also use Form 1099-Misc to report certain types of bonuses awarded to regular employees. For example, if you receive a referral bonus, your employer may report the payment on a Form 1099-Misc.
Taxable Income
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Both the IRS and the Ohio Department of Taxation consider any type of bonus pay as taxable compensation. While you may be able to reduce your taxable income with tax deductions, you typically must pay federal and state taxes on bonus compensation. The amount of tax you must pay depends on your individual tax rate.
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References
- Ohio Department of Taxation: FAQs-Do I Need to File an Ohio Income Tax Return?
- Ohio Department of Taxation: FAQs-What is My Income for Ohio?
- Wermer, Rogers, Doran and Ruzon: Form 1099-MISC
- IRS: A Guide to Information Returns
- IRS: Form W-2
- IRS: Form 1099-Misc
- IRS: Form 1040
- Nolo: Adjusted Gross Income
