Ohio has special provisions for seniors on retirement income at both the state and local level. When you establish withholding for retirement income in Ohio, you must consider several items. The state has a graduated income tax, so the amount of tax you pay depends on the amount of your total income. However, it also has a tax credit specifically for those with retirement income.
State Income Tax
Ohio uses the federal adjusted gross income as your taxable income. At the time of publication, from the federal adjusted gross income, you subtract $1,600 per dependent, including yourself. The graduated tax rate begins at 0.587 percent up to $5,050. The next tier of tax on income between $5,050 and $10,100 is $29.64 plus 1.174 percent of all funds over $5,050. Tier three goes up to $15,150, and the taxpayer pays 2.348 percent on the excess over $10,100. The fourth tier is between $10,100 and $15,150, with the tax rate of 2.935 percent. Between $15,150 and $20,400, the taxpayer pays $207.50 plus 2.935 percent of the amount over $15,500. The rate for taxation for the next five levels is as follows: 3.521 percent for $20,200 to $40,400; 4.109 percent for income between $40,350 to $80,700; 4.695 percent on income over $80,700 but less than $100,900; 5.451 percent on income more than $100,900 but less than $201,800 and 5.925 percent on all income above $201,800.
State Tax Retirement Credit
If you have retirement income in the state of Ohio, you can receive a tax credit to offset any tax due. In order to qualify for the credit, you must receive retirement benefits, payments from an annuity or a distribution from a retirement plan, pension or profit sharing plan. The income occurred because of retirement, not early distribution to pay for college or other need and was included in your income. At the time of publication, if the annual amount is less than $500, you receive nothing. If it's more than $500 but less than $1,500, you'll receive $25 credit. If your income is over $1,500 a year but less than $3,000, the credit increases to $50. For those with qualifying retirement income of more than $3,000 but under $5,000, the credit increases to $80. Between $5,000 and $8,000, the credit is $130; and finally, any qualifying retirement income over $8,000 receives $200 of credit.
Senior citizens receive a $50 credit on their taxes. You only receive one credit regardless of whether your filing status is single, married filing separately or married filing jointly. There's also a joint filing credit and a $20 exemption credit per person.
Some localities exempt retirement income, such as annuities and pensions, from taxation. They even include lump-sum distributions as nontaxable. Find out if your locality counts your retirement income as taxable income, and find the percentage if it does.
At the time of publication, if your pension income is $19,000 or lower, you won't owe any taxes. The retirement income credit and senior credit offset it. There's no need to withhold unless you'll owe local tax. If you have an income of approximately $40,000, your Ohio state tax liability will be approximately 2.5 percent of all income due on retirement funds because of the tax credit. Those with retirement income in the $80,000 to $150,000 range can withhold approximately 4 percent. For those above $100,000 but not $200,000, withholding 4.5 percent is adequate. For all above $200,000, withhold between 5 percent and 5.925 percent of your income.