This year, Ohio took a step it hadn’t taken before: it joined 14 other states and
Ohio’s tax system didn’t become a flat tax overnight. For much of the past two decades, Ohio had a more graduated rate structure with several income brackets. Like all progressive tax systems, marginal tax rates rose as taxable income increased. Over time, lawmakers steadily reduced rates and consolidated brackets.
By 2024, the state had reduced its tax structure to just two brackets above the zero-tax threshold, and the gap between the lowest and highest marginal rate had narrowed.
In 2025, Ohio’s top marginal tax rate fell to one of its lowest in the state’s modern history: 3.125%.
Beginning in tax year 2026, Ohio applies a single rate structure to nonbusiness income. Taxpayers with Ohio taxable nonbusiness income of $26,050 or less owe no Ohio income tax on that income. For taxpayers above that threshold, the tax is $332 plus 2.75% of the amount over $26,050.
While 2026 felt like a significant shift, it was really the culmination of a decades-long effort to simplify Ohio’s income tax system. For nonbusiness income above the threshold, Ohio now applies a single 2.75% marginal tax rate.
Flat taxes are frequently debated by economists and policymakers. One of the primary arguments in favor of progressive tax rates is that taxpayers with greater ability to pay will be able to contribute a larger share of their income without experiencing financial hardship. Let’s look at an example:
An individual earning $50,000 may spend nearly all their income on necessities: food, housing, transportation, childcare, healthcare, and utilities. An individual earning $500,000 likely spends more money on those same necessities, but those costs represent a much smaller percentage of their income.
In this example, a flat tax is likely to be more burdensome on the person earning $50,000. The $500,000 earner is better positioned to absorb additional taxes without experiencing a strain on their standard of living.
Although some economists and policymakers believe that progressive tax rates better serve public policy objectives, there are many compelling arguments in favor of a flat tax system, particularly at the state level.
Flat taxes are simple. A single tax rate is easier for all taxpayers to understand, even those who are less fluent in tax policy.
Flat taxes are transparent. There’s less guessing what you’ll pay at the end of the year. With a flat tax, you’ll have an easier time estimating your tax bill.
Flat taxes may encourage investment and entrepreneurship. Supporters argue that lower marginal tax rates leave high-performing individuals with more money to invest, which could boost economic activity for the community.
Flat taxes can make a state more competitive. Some argue that individuals may be influenced to move to a jurisdiction with lower marginal tax rates, which could bring economic growth and additional tax revenues to the state.
Whether flat taxes are “good” or “bad” ultimately depends on what’s being measured, and who is doing the measuring.
Ohioans in every income category face lower tax rates than they did 20 years ago. But some taxpayers will notice the shift to a flat tax more than others.
High-income taxpayers may see the greatest impact. Taxpayers whose income was previously subject to Ohio’s highest tax bracket are likely to see the greatest impact from the switch to a flat tax. From one year to the next, their tax rate dropped from 3.125% to 2.75%, which may reduce overall state income tax liability.
Taxpayers earning less than $100,000 may see little change. These taxpayers were already subject to Ohio’s 2.75% tax rate in 2025, so the transition to a flat tax is unlikely to change their year-end tax bills.
Owners of pass-through businesses should look carefully at the character of their income. Ohio taxable business income remains subject to a separate 3% tax after the applicable business income deduction, so the new 2.75% flat rate does not necessarily reduce tax on business income flowing from partnerships or S corporations. However, business owners with significant nonbusiness income that was previously taxed at Ohio’s top individual rate may benefit from the lower 2026 rate.
Ohio now has one of the lowest top marginal state individual income tax rates among states that tax wage income, but a taxpayer’s total liability depends on more than the state rate alone. Ohio taxable business income remains subject to separate rules, and municipal income taxes, school district income taxes, deductions, exemptions, credits, filing status, and the character of income can all affect the final tax result. Whether a flat tax represents better public policy remains a matter of debate, but Ohio’s income tax system is now simpler than it was twenty years ago. Contact us today for more information.