State and Local Taxes If You Retire in Ohio

Among its large cities including Cleveland, Cincinnati, and Columbus, medium-sized cities like Dayton, and its many small towns and rural areas, Ohio offers retirees a range of potential locations. The state's four distinct seasons, excellent outdoor recreation, and cultural opportunities and attractions provide for a variety of activities.

According to Top Retirements, per capita income in Ohio is lower than the national average, and housing prices are also generally lower. The cost of living index, based on a national index of 100, is 88 in Columbus and 84 in Cleveland. But the overall state and local tax burden in Ohio is relatively high. According to the Tax Foundation, Ohio ranked 7th in the country in 2008, with an estimated state and local tax burden of 10.4% of income compared to a national average of 9.7%.

Income tax

Ohio has a state income tax with progressive rates that range from 0.618% on the first $5,000 of taxable income up to a maximum rate of 6.240% on taxable income over $200,000 (rates in effect for 2010). Some municipalities in Ohio charge income taxes, at rates generally in the range of 1% to 2.75%, and school districts can also impose income taxes at rates of up to 1.75%. Some school districts charge income tax only on earned income, so retirement and other types of income would not be subject to school district income tax. As reported by Paula Schleis for the Beacon Journal, individual income tax rates across the board in Ohio will fall by more than 4% in 2011 as part of the state's tax reform program.

Social security, railroad, and military retirement benefits are exempt from Ohio state income tax. Benefits that you receive from an employee's disability plan that are paid as a result of a permanent physical or mental disability are exempt from Ohio state income tax. But once you reach the minimum retirement age for the plan, these disability benefits are considered retirement benefits and are no longer excludible.

You may qualify for the retirement income credit if you receive pensions, annuities or distributions from a pension, retirement, or profit sharing plan. The amount of the credit is based on the amount of retirement income you receive, up to a maximum credit of $200 if you have total retirement income of more than $8,000. If you are 65 or older, you can also claim a $50 senior citizen credit.

You may be able to claim a deduction for accident and health insurance premiums for you and your dependents, long-term care premiums, and health care expenses not covered by insurance to the extent they exceed 7.5% of your federal adjusted gross income. You can claim this deduction without itemizing your deductions.

Property taxes

Property taxes in Ohio are relatively high, with the Tax Foundation ranking the state 11th in the country in 2009 in terms of property taxes as a percentage of median home value at 1.36%. Property taxes are levied on 35 percent of the market value of residential property.

If you are at least 65 years of age, or permanently and totally disabled or you are a surviving spouse at least 59 years old, you can claim a homestead exemption. The amount of the homestead exemption is $25,000 of the property's true market value. So if you have a home with a market value of $100,000, you would pay property taxes on only $75,000. There is no longer any income requirement for claiming the homestead exemption in Ohio.

Sales tax

Ohio has a 5.5% state sales tax and county sales taxes can bring the total rate up to 7%. Food, prescription drugs and telephone service are exempt from sales tax. You can find the total sales tax by location using the tools on the Sales and Use Tax page of the Ohio Department of Taxation website.

Sources:
The Facts on Ohio's Tax Climate - Tax Foundation
Ohio Income Tax Booklet - Ohio Department of Taxation
Paula Schleis, "Tax rate will fall next year in Ohio" - Beacon Journal
Retire in Ohio - active adult communities - Top Retirements
Sales and Use Tax - Ohio Department of Taxation
School District Income Tax - Ohio Department of Taxation
Taxes by State - Ohio - Retirement Living Information Center
Property Tax Relief for Senior Citizens and the Disabled - Ohio Department of Taxation
Property Taxes on Owner-Occupied Housing by State, 2004 - 2009 - Tax Foundation