Ohio 2026 Tax Changes — How Federal OBBBA Law Impacts Your State & City Taxes
On January 1, 2026, the tax landscape for Ohio residents underwent a historic and positive transformation. At the federal level, the One Big Beautiful Bill Act (OBBBA ) made the popular 2017 TCJA tax cuts permanent and introduced new benefits, avoiding the feared “tax cliff.”
This federal relief is especially critical for Ohioans, who often face a “triple tax” burden: federal, state, and municipal income taxes. Because both Ohio and its major cities use federal Adjusted Gross Income (AGI) as the starting point for their own tax calculations, the permanent federal cuts create a positive ripple effect, lowering taxable income at all three levels.
The Triple-Tax Impact: How Federal Relief Helps Ohioans
Permanent Federal Relief from OBBBA
- Lower Federal Tax Brackets are PERMANENT: The lower individual income tax rates from the TCJA are here to stay. This is a crucial win for Ohio's manufacturing, healthcare, and professional service sectors.
- The Federal Standard Deduction is PERMANENT: The higher federal standard deduction is also permanent, simplifying filing and lowering federal taxable income for the majority of households.
- The QBI Deduction is PERMANENT and ENHANCED: The 20% Qualified Business Income (QBI) Deduction is a permanent part of the federal tax code, a massive benefit for the state's many small businesses, contractors, and entrepreneurs.
How Federal AGI Affects Ohio State and City Taxes
Ohio’s tax structure makes federal changes uniquely impactful. Both the state income tax and the municipal income taxes levied by cities like Columbus, Cleveland, Cincinnati, Toledo, and Akron use your federal AGI as the starting point.
Ohio Impact: This means every dollar you save on your federal AGI through permanent deductions directly reduces your taxable income for both your Ohio state return and your city tax return. The permanent federal standard deduction and new deductions from OBBBA provide a powerful, three-level tax benefit.
New Federal Tax Breaks for Ohio Residents
- Overtime Deduction: Deduct up to $12,500 ($25,000 for joint filers) of qualified overtime pay. This is a game-changer for workers in Ohio's massive manufacturing, logistics, and skilled trades industries.
- Senior Deduction: An additional $6,000 deduction for individuals 65 and older, providing federal tax relief for Ohio’s retirees (subject to phase-out).
- Auto Loan Interest Deduction: Deduct up to $10,000 in interest paid on loans for new or used cars and trucks, a significant benefit in a state where vehicles are essential for commuting and family life.
Ohio-Specific Tax Considerations for 2026
A Major Win for Manufacturing, Logistics, and Skilled Trades
The new federal Overtime Deduction is a massive benefit for the backbone of Ohio’s economy. For the thousands of Ohioans working in factories, distribution centers, and construction, this provides direct, substantial federal tax relief on overtime earnings, which in turn lowers state and local tax bills.
Real Estate and STRs in a Stable Market
For property owners in markets like Columbus, Cincinnati, and STR destinations like Hocking Hills, OBBBA brings welcome news. The 100% bonus depreciation for qualified property is now permanent. This allows real estate investors and STR hosts to immediately write off the cost of certain assets on their federal return, making strategies like cost segregation incredibly powerful to offset rental income.
Retirement in the Buckeye State
While Ohio taxes most retirement income, the new federal Senior Deduction and permanent lower federal tax rates help reduce the overall tax burden for retirees. Since Social Security benefits are not taxed by the state of Ohio, these federal benefits provide additional relief.
What Ohio Taxpayers Should Do Now
- Update Your Tax Plan: Your old strategy is obsolete. It’s time to build a new, coordinated plan that accounts for federal, state, and municipal tax liabilities.
- Maximize New Federal Deductions: If you earn overtime, ensure you are accurately tracking your income to take full advantage of this powerful new federal deduction.
- Leverage Your Business Structure: Work with a professional to ensure your LLC or S- Corp is structured to maximize the permanent 20% federal QBI deduction, which will lower your income at all three levels of taxation.
- Review Your Retirement Strategy: Factor in the new federal Senior Deduction and permanent lower rates when planning your retirement distributions.
Ohio 2026 Tax FAQ
Does Ohio conform to the QBI deduction?
No. QBI is federal-only.
Will Ohio taxes increase due to 2026 changes?
Tax rates remain the same, but taxable income rises due to federal adjustments.
Are city taxes affected?
Yes. Local taxes also rise because they use federal AGI.
Are families affected?
Yes. The reduced Child Tax Credit and higher AGI reduce refunds.
Are STR owners impacted?
Yes. STR rules tighten and depreciation declines.
Are retirees affected?
Yes. Federal bracket increases raise the tax cost of retirement withdrawals
Get Your Personalized 2026 Ohio Tax Plan
The tax landscape has permanently shifted in your favor. Don’t operate on outdated assumptions. A personalized strategy session will ensure you are structured to maximize every new and permanent benefit under federal, state, and local law.
Because tax situations vary by individual and business, many Ohio residents choose to work with a qualified tax professional. You can explore available Ohio tax services here: