The Ohio House recently passed the $74.7 billion state budget (House Bill 110). The two-year state operating budget now heads to the Senate for consideration. As of now, there are no tax increases being proposed, such as changes to the Business Income Deduction (BID) which allows agencies set up as pass-through entities (sole proprietors, LLPs, LLCs, S-corps, etc.) to deduct up to $250,000 of pass-through business income. This is welcome news as during negotiations on the last state budget the Ohio House proposed a reduction of the BID from $250,000 to $100,000 and proposed making these changes retroactive, potentially subjecting taxpayers to fines and penalties on estimated payments they would have already made. The majority of OIA member independent insurance agencies are set up as pass-through entities. It is also important to note that more than 80% of our members employ less than 10 people, and these independent insurance agencies survive on small margins.
To demonstrate the importance of the BID, OIA recently partnered with the Ohio Chamber of Commerce Research Foundation on the release of a comprehensive economic impact analysis of the BID in the state of Ohio. The analysis suggests that Ohio saw increased economic activity to the tune of $5.9 billion in 2018, when compared to a model of Ohio’s economy in which the BID did not exist. It further indicates that the economic activity supported by the existence of the BID led to the employment of over 59,000 Ohioans, including more than 14,000 Ohioans employed by small businesses. Lastly, the study suggests that the tax savings business owners experience through the BID may have helped roughly 1,200 businesses keep their doors open in 2018, compared to an Ohio economy in which the BID did not exist.
Fortunately, this budget cycle the Ohio House is proposing a tax reduction with a two percent across-the-board income tax rate cut on all nonbusiness income. This proposal would reduce the current top personal income tax rate from 4.797% to 4.701% beginning this calendar year. In addition to this proposed tax change, the Ohio House has also incorporated a major revamp of the K-12 funding formula, a new Broadband Expansion Grant Program and a tax deduction for capital gains received by investors of Ohio-based businesses. The proposed budget also has grant relief for many industries that have been hit especially hard by the pandemic.
The state budget needs to be signed by Gov. Mike DeWine by June 30th so it can take effect in time for the next fiscal year which starts July 1st.
For questions, please contact Carolyn Mangas at carolyn@ohioinsuranceagents.com.
