Key Takeaways

  • Ohio does not impose a corporate income tax on S corps, but they must pay the Commercial Activity Tax (CAT).
  • S corps in Ohio avoid double taxation by passing income to shareholders, who pay personal income tax.
  • To elect S corp status in Ohio, you must form a corporation or LLC and file IRS Form 2553.
  • Shareholders must meet IRS eligibility requirements, such as being U.S. individuals or certain trusts.
  • Even though Ohio doesn't tax S corp net income, businesses may still need to file annual CAT returns and federal informational returns.

The Ohio corporate income tax must be paid by most corporations and businesses 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 every year. 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 This tax was repealed and is no longer applicable.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.

How Ohio Treats S Corporations for Tax Purposes

Ohio S corporations benefit from pass-through taxation, meaning they typically do not pay corporate income tax at the state level. Instead, income, losses, and deductions are passed through to shareholders, who report them on their personal income tax returns. However, Ohio imposes a Commercial Activity Tax (CAT) on gross receipts, which still applies to S corps.

Here’s how Ohio taxes S corporations:

  • No corporate income tax on net income for S corps at the state level.
  • CAT applies to all business entities, including S corps, based on gross receipts.
  • Federal income taxes still apply to S corporation shareholders based on allocated income.

This treatment aligns with Ohio’s approach to encourage business formation while still collecting revenue through CAT. Even though there's no traditional corporate income tax for an S corp in Ohio, businesses must remain compliant with CAT and federal tax obligations.

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:

  • Partnerships
  • S-corporations
  • 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:

  • Michigan
  • Texas
  • Washington

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 businesses.

Pros and Cons of an S Corp in Ohio

Pros:

  • Pass-through taxation: Avoids double taxation by taxing income only at the shareholder level.
  • Limited liability protection: Shareholders are not personally liable for company debts.
  • Tax savings on self-employment tax: Reasonable salary plus distributions may reduce overall tax liability.

Cons:

  • Strict eligibility rules: Only certain entities and shareholders qualify.
  • Ongoing compliance: Requires corporate formalities and annual filings with the IRS and state.
  • Commercial Activity Tax (CAT): Gross receipts are taxed, regardless of profit.

Ohio business owners should weigh these pros and cons when considering S corp status.

Filing Requirements for S Corps in Ohio

Although S corporations in Ohio do not pay corporate income tax, they still have important filing obligations:

  • Commercial Activity Tax (CAT):
    All S corps with gross receipts exceeding $150,000 must register and file CAT returns annually or quarterly, depending on revenue.
  • Federal Informational Return:
    File IRS Form 1120-S annually to report income, losses, and other tax information.
  • Shareholder K-1s:
    Provide each shareholder with a Schedule K-1, showing their share of income or loss.
  • Ohio Individual Income Tax Returns:
    Shareholders must include their share of S corp income on their personal Ohio income tax filings.
  • Local Taxes:
    Municipalities in Ohio may levy additional taxes that apply to business net profits or employee wages.

Failure to meet these requirements can result in penalties or loss of S corp status.

How to Elect S Corporation Status in Ohio

To create an S corp in Ohio, you must take the following steps:

  1. Form a Corporation or LLC in Ohio – Register your business entity through the Ohio Secretary of State’s office.
  2. Obtain an EIN – Apply for an Employer Identification Number from the IRS.
  3. File IRS Form 2553 – Submit this form within 75 days of forming your entity or by March 15 of the tax year you want S corp treatment.
  4. Ensure IRS Eligibility – Your company must meet these conditions:
    • No more than 100 shareholders
    • All shareholders are U.S. citizens, resident aliens, or certain qualifying trusts
    • Only one class of stock
    • All shareholders consent to the S election
  5. File with the Ohio Department of Taxation if applicable – While no state-level S corp election is required, ensure CAT registration is complete.

Failing to meet IRS criteria or to file on time can cause delays or rejection of your S corp election.

Frequently Asked Questions

1. Do S corps pay corporate income tax in Ohio? No. S corporations are exempt from Ohio corporate income tax but must pay the Commercial Activity Tax based on gross receipts.

2. What is the Ohio CAT, and does it apply to S corps? The Commercial Activity Tax (CAT) is a gross receipts tax that applies to most Ohio businesses, including S corporations.

3. How do I elect S corp status in Ohio? You must form a corporation or LLC and file IRS Form 2553. No separate Ohio election is required, but CAT registration is.

4. Do S corp shareholders in Ohio pay state income tax? Yes. Shareholders must report and pay personal Ohio income tax on their share of the S corp’s income.

5. Can an LLC be taxed as an S corp in Ohio? Yes. An Ohio LLC can elect to be taxed as an S corporation by filing IRS Form 2553 and meeting all IRS requirements.

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