Ohio's 2.75% Flat Tax in 2026: Who Wins, Who Loses, and What It Means for Your Wallet

On January 1, 2026, Ohio became a flat tax state. Every Ohioan earning more than $26,050 in nonbusiness income now pays the same rate: 2.75%. No brackets. No phase-ins. One rate.

That makes Ohio the second-lowest flat income tax state in the nation, behind only Arizona's 2.5% - and ahead of neighbors like Indiana (2.95%) and Pennsylvania (3.07%).

Whether this is a triumph of tax simplification or a giveaway to the wealthy depends on who you ask. The Ohio House GOP called it "historic income tax relief." Policy Matters Ohio called it a shift that "had no benefit for anyone with annual income less than $100,000."

Both sides cite real numbers. This guide lays out all of them - the official rate table, the legislative record, real-dollar savings at every income level, and the revenue trade-offs - so you can decide for yourself what this means for your wallet.

Ohio's 2026 Income Tax Rate: The Official Numbers

Here is the complete rate structure for 2025 and 2026, taken directly from Ohio Revised Code § 5747.02 (as amended by House Bill 96, effective September 30, 2025) and confirmed by the Ohio Department of Taxation's Annual Tax Rates page:

Tax Year	Nonbusiness Income	Tax Calculation
2025	$0 – $26,050	0% (no tax)
2025	$26,051 – $100,000	$342 + 2.75% of amount over $26,050
2025	Over $100,000	$2,394.32 + 3.125% of amount over $100,000
2026+	$0 – $26,050	0% (no tax)
2026+	Over $26,050	$332 + 2.75% of amount over $26,050 (true flat rate)

The key change: in 2025, income above $100,000 was taxed at 3.125%. In 2026, that higher bracket is gone. Everything above $26,050 is taxed at the same 2.75%.

Important distinctions:

• The 2.75% rate applies only to nonbusiness income - wages, salaries, interest, and dividends.
• Business income (from sole proprietorships, partnerships, S corps, LLCs) is taxed separately at a flat 3% after the first $250,000 deduction. This was not changed by HB 96.
• The $26,050 threshold is frozen - it is not indexed for inflation for 2025-2026.
• Filers with MAGI above $500,000 lose personal, spousal, and dependent exemptions plus the joint-filing credit.

How We Got Here: The Legislative Timeline

Ohio's flat tax did not happen overnight. It is the culmination of two decades of income tax reductions. Here is the final chapter:

Date	Event
June 25, 2025	Ohio House passes Am. Sub. HB 96
June 30, 2025	Governor Mike DeWine signs HB 96 into law (136th General Assembly)
September 30, 2025	Amended Ohio Revised Code § 5747.02 takes effect
October 1, 2025	Updated withholding tables issued (reflecting the 2025 phase-in brackets)
January 1, 2026	Full 2.75% flat tax effective for calendar-year filers

When the House passed the budget plan, the Ohio House Republican caucus announced:

"The move to a flat tax makes Ohio more competitive with surrounding states, simplifies the tax code, and spurs revenue… This budget provides historic income tax relief, and meaningful, broad-based property tax relief for every Ohioan."

- Ohio House of Representatives Republican Caucus, June 25, 2025

The bill text is available in full at the Ohio Legislature website.

Who Wins and Who Loses: Real-Dollar Breakdown

This is where the debate gets heated. The flat tax treats all income above $26,050 the same - but the dollar impact is dramatically different depending on how much you earn.

Here is the distributional breakdown, based on analysis by Policy Matters Ohio and the Institute on Taxation and Economic Policy (ITEP), published in their February 2026 report "The Great Ohio Tax Shift, 2026":

Income Group Savings Under the 2026 Flat Tax

Income Group	Approximate Income	Annual Tax Savings	Share of Total Relief
Bottom 20%	Under $26,000	$0	0%
Median Household	~$72,000	~$459	Modest
Top 1%	Over $754,000	$67,983 – $69,000	Over 25%

Let that table sink in. The top 1% of Ohio earners capture more than a quarter of the total tax relief, while the bottom 20% receive literally nothing from the flat tax change.

Why the Savings Are So Lopsided

The math is straightforward. The flat tax savings come from eliminating the 3.125% bracket that applied to income above $100,000 in 2025. If your income never reached $100,000, you were already paying 2.75% - the flat tax changes nothing for you.

Here is how the savings work at specific income levels:

The pattern is clear: the higher your income, the larger your dollar savings. This is the mathematical inevitability of replacing a graduated system with a flat rate.

The Debate: What Supporters and Critics Are Saying

Ohio's flat tax has generated strong reactions from across the political spectrum. Here is what the major voices are saying - in their own words.

The Case For Ohio's Flat Tax

The ITR Foundation, a national tax reform advocacy organization, praised the change in a July 3, 2025 analysis:

"Ohio has enacted a major income tax reform… transitioning to a 2.75% flat tax in 2026 - the second lowest flat tax rate in the nation [behind Arizona's 2.5%]. This will make Ohio more competitive."

- ITR Foundation, July 3, 2025

The Tax Foundation confirmed the change in their December 18, 2025 annual review of state tax changes:

"On January 1, 2026, the individual income tax moves to a flat rate of 2.75 percent for all nonbusiness income over $26,050."

- Tax Foundation, December 18, 2025

Supporters argue that the flat tax:

• Simplifies the tax code - one rate is easier to understand and comply with
• Makes Ohio more competitive - the 2.75% rate is lower than most neighboring states
• Attracts businesses and residents - low, predictable rates reduce friction for employers and workers
• Reduces compliance costs - fewer brackets mean simpler withholding and filing

The Case Against Ohio's Flat Tax

Policy Matters Ohio, working with the Institute on Taxation and Economic Policy, published a detailed distributional analysis in February 2026 titled "The Great Ohio Tax Shift, 2026." Their conclusion was blunt:

"In 2026, millionaires in Ohio will pay the same 2.75% income tax rate as public school teachers, child care workers, firefighters or any Ohioan with income over $26,050… The flat tax alone will cost the state approximately $486.2 million in fiscal year 2026 and $1.03 billion in fiscal year 2027 - and had no benefit for anyone with annual income less than $100,000."

- Policy Matters Ohio / ITEP, "The Great Ohio Tax Shift, 2026," February 2026

Critics argue that the flat tax:

• Overwhelmingly benefits the wealthy - the top 1% receive 25%+ of total savings
• Provides nothing to the lowest earners - zero savings for anyone under $26,050
• Costs the state over $1 billion annually - revenue that funded public services
• Continues a 20-year trend of tax cuts that exceed K-12 spending - total Ohio tax cuts since 2005 now surpass $17 billion per year

Pros and Cons at a Glance

Pros (Supporter View)	Cons (Critic View)
Simplest state income tax in Ohio history	Zero benefit for bottom 20% of earners
2nd-lowest flat rate in the nation (2.75%)	Top 1% capture over 25% of total relief
More competitive than IN (2.95%), PA (3.07%)	$1.03 billion annual revenue loss by FY 2027
Lower compliance costs for businesses	$17B+ in cumulative tax cuts since 2005 exceed K-12 funding
Encourages economic growth and in-migration	$26,050 threshold not indexed for inflation (bracket creep)
Paired with property tax relief in HB 96	Millionaires pay same rate as teachers and firefighters

The Revenue Impact: What Ohio Is Giving Up

The fiscal cost of Ohio's flat tax is significant. According to Policy Matters Ohio / ITEP:

• FY 2026 revenue loss (flat tax only): $486.2 million
• FY 2027 revenue loss (flat tax only): $1.03 billion
• Cumulative Ohio tax cuts since 2005: over $17 billion per year - more than total state K-12 education funding

These are the flat-tax-specific figures. They do not include the property tax relief provisions also included in HB 96, which have their own fiscal impact.

For context, the $1.03 billion annual loss from the flat tax alone represents revenue that previously funded state services. Whether the economic growth generated by a more competitive tax rate offsets this loss is a question economists will debate for years.

How Ohio Compares: The National Flat Tax Landscape

Ohio joins a growing trend. As of 2026, more than a dozen states have adopted flat income taxes. Here is how Ohio's rate stacks up against the competition:

State	Flat Income Tax Rate	Notes
Arizona	2.5%	Lowest flat rate in the nation
Ohio	2.75%	2nd lowest; effective Jan. 1, 2026
Indiana	2.95%	Neighboring state; slightly higher
Pennsylvania	3.07%	Neighboring state; has been flat for decades
Florida	0%	No state income tax
Texas	0%	No state income tax
Tennessee	0%	No state income tax

As the ITR Foundation noted, Ohio's move "puts pressure on other states" - particularly neighbors like Michigan (4.25%) and West Virginia (which is phasing out its income tax entirely). The regional competition for residents and businesses is intensifying.

What This Means for You: Practical Considerations

Whether the flat tax is good or bad policy is a political question. What matters for your finances is how to respond to it. Here are the practical takeaways:

If You Live and Work in Ohio

• Check your withholding. Updated withholding tables were issued October 1, 2025. If your employer has not adjusted your paycheck, contact your payroll department. You should see slightly lower withholding if you earn above $100,000.
• Understand the $26,050 threshold. If your taxable nonbusiness income is under $26,050, you owe $0 in Ohio income tax. This has not changed.
• Business owners: your rate is different. The 2.75% rate does not apply to business income. Your business income is still taxed at 3% after the first $250,000 deduction.
• High earners: watch the $500,000 MAGI cliff. If your modified adjusted gross income exceeds $500,000, you lose personal, spousal, and dependent exemptions plus the joint-filing credit. This partially offsets your flat tax savings.

If You Are Considering Moving to Ohio

Ohio's 2.75% rate is attractive compared to many states. If you currently live in a state like California (up to 13.3%), New York (up to 10.9%), New Jersey (up to 10.75%), or Illinois (4.95%), the savings could be substantial.

However, if your goal is to eliminate state income tax entirely, states like Florida, Texas, Nevada, Wyoming, South Dakota, and Tennessee charge 0%. Ohio is a strong option for people who want to live in the Midwest with a low - but not zero - tax rate.

If You Are Considering Leaving Ohio

Ohio does not have an exit tax, and it does not aggressively audit departing residents the way New York, California, and New Jersey do. That said, establishing proper domicile in your new state and documenting the move is still best practice. See our guide on proving a domicile change during a tax audit.

Ohio Withholding Tables 2026

Employers should have updated to the new withholding tables issued by the Ohio Department of Taxation on October 1, 2025. The 2026 tables reflect the single 2.75% rate on all nonbusiness income above $26,050.

If you notice your paychecks have not changed, contact your employer's payroll department. You can verify the current rates at the Ohio Department of Taxation's Annual Tax Rates page.

Frequently Asked Questions

What is Ohio's income tax rate in 2026?

Starting January 1, 2026, Ohio's income tax on nonbusiness income is a flat $332 plus 2.75% of the amount exceeding $26,050. Income below $26,050 is not taxed. This was enacted under House Bill 96 (136th General Assembly), signed by Governor Mike DeWine on June 30, 2025.

Does Ohio have a flat tax now?

Yes. As of January 1, 2026, Ohio has a true flat income tax of 2.75% on all nonbusiness income above $26,050. In 2025, Ohio had a transitional two-bracket system (2.75% up to $100,000 and 3.125% above $100,000). The 2026 change eliminates the higher bracket entirely. Ohio is now the second-lowest flat tax state in the nation after Arizona (2.5%).

How much will I save under Ohio's flat tax?

Savings depend entirely on your income level. If you earn under $26,050, you save nothing. A median-income household earning around $72,000 saves approximately $459 per year. The top 1% of earners (above $754,000) save an average of $67,983 to $69,000 annually according to Policy Matters Ohio / ITEP analysis.

What is the $26,050 threshold?

The $26,050 threshold is the amount of nonbusiness income exempt from Ohio income tax. If your taxable nonbusiness income is at or below $26,050, you owe $0 in Ohio income tax. Income above that amount is taxed at 2.75% (plus a base amount of $332). This threshold is frozen and not indexed for inflation, per Ohio Revised Code § 5747.02.

How is Ohio business income taxed in 2026?

Ohio business income is taxed separately. The first $250,000 of taxable business income is deducted (not taxed), and the amount above $250,000 is taxed at a flat 3%. This rate was not changed by HB 96.

What was Ohio's income tax rate in 2025?

In 2025, Ohio had two brackets for nonbusiness income: income from $26,051 to $100,000 was taxed at $342 plus 2.75% of the excess over $26,050, and income above $100,000 was taxed at $2,394.32 plus 3.125% of the excess over $100,000. Source: Ohio Department of Taxation.

When was Ohio's flat tax signed into law?

Governor Mike DeWine signed House Bill 96 on June 30, 2025. The flat tax applies to taxable years beginning on or after January 1, 2026. Full bill text: Ohio Legislature, HB 96.

How does Ohio's flat tax compare to other states?

Ohio's 2.75% flat rate is the second lowest among states with a flat income tax, behind only Arizona at 2.5%. Indiana charges 2.95%, Pennsylvania charges 3.07%, and neighboring Michigan charges 4.25%. States like Florida, Texas, and Tennessee have no income tax at all. Source: Tax Foundation.

Do I lose any exemptions under Ohio's 2026 tax law?

If your modified adjusted gross income exceeds $500,000 in 2026, you lose your personal exemption, spousal exemption, dependent exemptions, and the joint-filing credit. Filers below $500,000 MAGI retain all exemptions.

How much revenue does Ohio lose from the flat tax?

According to Policy Matters Ohio and ITEP, the flat tax alone costs Ohio approximately $486.2 million in fiscal year 2026 and $1.03 billion in fiscal year 2027. Total Ohio tax cuts since 2005 now exceed $17 billion per year.

Will Ohio's $26,050 threshold increase with inflation?

No, not currently. The $26,050 threshold is frozen and not indexed for inflation for the 2025-2026 period. As wages rise, more Ohioans will cross the threshold and begin owing income tax - a phenomenon known as bracket creep.

Should I move to Ohio for the flat tax?

Ohio's 2.75% rate is competitive, but it is not zero. If minimizing state income tax is your primary goal, states like Florida, Texas, Nevada, Wyoming, South Dakota, and Tennessee have no state income tax at all. Ohio is most beneficial for people already living there or comparing it to higher-tax states like California, New York, or New Jersey. For a comparison, use our state tax comparison calculator.

Key Takeaways

• Ohio has a true 2.75% flat income tax starting January 1, 2026. One rate for all nonbusiness income above $26,050. No brackets, no phase-ins.
• Ohio is the 2nd-lowest flat tax state in America. Only Arizona (2.5%) is lower. Ohio beats Indiana (2.95%) and Pennsylvania (3.07%).
• The savings are real but lopsided. Top 1% save ~$68,000/year on average. Median households save ~$459. Bottom 20% save $0.
• The fiscal cost is substantial. $486.2 million in FY 2026, $1.03 billion in FY 2027 according to nonpartisan analysis.
• Business income is taxed differently. Still a flat 3% after $250,000 deduction. Unchanged by HB 96.
• High earners above $500K MAGI lose exemptions. Personal, spousal, dependent exemptions and joint-filing credit phase out.
• The $26,050 threshold is frozen. Not indexed for inflation, meaning bracket creep will push more earners into taxable territory over time.
• Check your withholding. Updated tables were issued October 1, 2025. Make sure your employer has adjusted.
• If zero tax is your goal, Ohio is not the answer. Florida, Texas, and five other states charge 0% income tax.

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This article is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional or attorney for guidance specific to your situation.

Sources: Ohio Revised Code § 5747.02; Ohio Department of Taxation, Annual Tax Rates; Ohio Legislature, HB 96; Ohio House Republicans; Policy Matters Ohio / ITEP, "The Great Ohio Tax Shift, 2026"; ITR Foundation; Tax Foundation, 2026 State Tax Changes.