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Ohio Retirement Tax Friendliness

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Overview of Ohio Retirement Tax Friendliness

Social Security retirement benefits are fully exempt from state income taxes in Ohio. Any income from pensions or retirement accounts like a 401(k) or an IRA is taxed as regular income, but there are credits available. Both property and sales tax rates are slightly higher than the national average.

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You will pay of Ohio state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jim Barnash is a Certified Financial Planner with more than four decades of experience. SmartAsset’s retirement expert is passionate about helping both individuals and business owners prepare for retirement. Jim has run his own advisory firm, worked for large financial services companies and even acted as a consultant to help other advisors grow their businesses. He is an author and public speaker on a variety of financial topics. Jim previously served for six years as President and Chairman for the Financial Planning Association. He also instructs others about the topic – Jim has created and taught courses on financial planning at DePaul University and William Rainey Harper Community College.

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Ohio Retirement Taxes

Photo credit: ©iStock.com/risamay

Ohio offers retirees a cost of living that is 3% below the national average, as well as a variety of charming small towns to go along with several major cities and attractions including the Rock & Roll Hall of Fame and Hocking Hills State Park. While winters are cold and snowy, summertime in Ohio is typically warm and beautiful.

Ohio’s retirement taxes are somewhat higher than average as compared with other states. Social Security retirement benefits are fully exempt from income taxes. Seniors with retirement income in addition to Social Security benefits will have to pay income taxes on that income, though they may qualify for a tax credit.

Sales taxes and property taxes are especially important for retirees, who generally operate on a fixed budget. In Ohio, both taxes are slightly higher than the national averages. Below we will outline the rates and rules for each of these retirement taxes in Ohio.

Is Ohio tax-friendly for retirees?

Ohio is moderately tax-friendly. Just how friendly (or unfriendly) depends on where you receive the bulk of your income from and how you spend it. Seniors who rely mostly or fully on Social Security retirements benefits should do rather well under Ohio’s retirement tax system, as Social Security is exempt from state income taxes. Retirees who rely mostly on other sources, such as a 401(k) or a pension, will likely face a larger tax bill.

Likewise, retirees who spend more of their money on non-tangible services (movie tickets for example) as well as necessities such as food and medicine should have a smaller total sales tax bill, as those items are all tax-exempt.

Is Social Security taxable in Ohio?

No. Ohio does not tax Social Security retirement benefits, even those that are taxed federally. That, along with the state’s low cost of living, can make it possible for some to live off Social Security benefits alone in many Ohio counties.

Are other forms of retirement income taxable in Ohio?

Yes. Any income from pensions or retirement accounts like a 401(k) or an IRA is taxed as regular income, at the rates shown in the table below. Taxpayers with retirement income from these sources in excess of $8,000 can claim a credit of up to $200. Taxpayers age 65 and older are eligible for an additional $50 credit if their adjusted gross income (AGI) is less than $100,000.

Income Tax Brackets

All Filers
Ohio Taxable IncomeRate
$0 - $5,2500.495%
$5,250 - $10,5000.990%
$10,500 - $15,8001.980%
$15,800 - $21,1002.476%
$21,100 - $42,1002.969%
$42,100 - $84,2003.465%
$84,200 - $105,3003.960%
$105,300 - $210,6004.597%
$210,600+4.997%

How high are property taxes in Ohio?

Moderately high. The average effective property tax rate in Ohio is 1.56%, higher than the national average. That said, home prices and overall housing costs in Ohio are close to the national averages. The median home value in the state is $131,900 and housing costs are 1.8% higher than the national average.

What is the Ohio homestead exemption?

The Ohio homestead exemption reduces the property taxes owed by qualifying seniors in Ohio. To be eligible, a homeowner must be at least 65 years old and have Ohio Adjusted Gross Income (OAGI) of no more than $32,200 in 2018. You can also qualify for the exemption if you are permanently disabled or if you are the surviving spouse of someone who previously received the exemption.

The exemption is equal to $25,000 off the market value for the purposes of taxation. For example, if your home value is $150,000, only $125,000 of that is taxable after the exemption. According to the Ohio Department of Taxation, this equals average savings of about $435 per eligible homeowner.

Photo credit: ©iStock.com/StanRohrer

How high are sales taxes in Ohio?

When considering the state tax rate of 5.75% and county rates that range from 0.75% to 2.25%, the average total sales tax rate in Ohio is about 7.14%. That ranks in the top 20 of U.S. states.

However, some sales tax exemptions in Ohio should help seniors limit the amount of their budget that goes to sales taxes. Exempt items include most groceries, prescription drugs and newspapers.

What other Ohio taxes should I be concerned about?

Ohio schools, cities and districts collect their own income taxes, with rates as high as 2.25%. These do not apply to retirement income, but retirees with work income may need to pay these taxes.

Ohio eliminated its estate tax in 2013, so retirees who are planning for the settlement of their estate do not need to worry about that.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration