Ohio Corporate Income Tax: Everything You Need to Know
The Ohio corporate income tax must be paid by most corporations and business that operate in this state.3 min read
The Ohio corporate income tax must be paid by most corporations and business that operate in this state. The tax applies to a business's gross taxable income, and the rate you pay depends on how much your business has earned in a tax year.
Basics of the Ohio Corporate Income Tax
Essentially, the Ohio corporate income tax functions similar to the personal income tax most residents of the state must pay. The corporate income tax is a progressive tax system.
Businesses in Ohio must file a tax return on a yearly basis. On these returns, corporations can claim deductions for issues such as:
- Employee wages
- The cost of selling goods
- Other business expenses
In addition to the corporate income tax, Ohio requires a commercial activity tax (CAT). Most businesses in the state must pay the CAT, with the exact amount due calculated using gross receipts. Before 2014, a corporate franchise tax was also required for Ohio businesses. This tax was repealed and is no longer applicable.
If you run a business in Ohio, you will likely need to pay the CAT. For businesses where income passes through to the owners, business income gets taxed on the owners' personal returns.
The Ohio CAT allows you to do business in this state, and bases charges on the following brackets:
- No tax for businesses with less than $150,000 in gross receipts
- $150 tax for businesses with between $150,000 and $1 million in gross receipts
- $800 tax for businesses with between $1 million and $2 million in gross receipts
- $2,100 tax for businesses with between $2 million and $4 million in gross receipts
- Businesses with over $4 million in gross receipts must pay both a base tax of $2,600 plus 0.26 percent of gross receipts
To pay the CAT, you must comply with specific online registration requirements. The state also has rules for when and with what frequency you must pay this tax. For instance, if your business has gross receipts of more than $1 million, your CAT is required quarterly, and you must pay on May 10, Aug. 10, Nov. 10, and Feb. 10. A business's net income usually is not taxed in Ohio. Individual income will be taxed marginally with rates between 1.9 and 4.9 percent.
Businesses That Must Pay the Corporate Income Tax
The majority of Ohio business entities must pay the Ohio corporate income tax on their business earnings. Pass-through entities are excluded from this requirement:
- Sole proprietorships
C-corporations are the most common entity that must pay this tax. The drawback of a C-corporation is having to deal with double taxation. Essentially, this means business revenue gets taxed twice. First, business revenue is subject to the corporate income tax. Second, any profits distributed to owners of the corporation get taxed on the owner's individual returns.
Pass-through entities such as S-corporations are not at risk for double taxation, as revenue is not taxed at the corporate level, only on the owner's income returns. Owners of a corporation are legally required to report how much of the corporation's income they are entitled to and then pay taxes on this income at both the state and federal levels.
Businesses that have incorporated in Ohio should be sure to file an informational tax return even if they are not required to pay the corporate income tax. They should file this return with the Ohio Department of Revenue. Corporations, even those exempt from corporate taxation, should also file a business return with the Internal Revenue Service.
The commercial activity tax functions similarly to a corporate income tax. Other states that use a similar tax system for corporations include:
If you want to structure your Ohio business as an S-corporation, you would first need to establish a traditional C-corporation and then make a special tax election with the IRS. Ohio recognizes the special tax status of S-corporations, meaning businesses do not have to pay corporate income tax. S-corporations in this state, however, are still required to pay the commercial activity tax that applies to most business.
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