What to Look For
If you are in the market for a new home, choose your location very carefully. Even when you are relocating to an adjacent neighborhood just a few streets away, the move can trigger a staggering tax hike.
In Ohio, nearly every city, village or incorporated entity has some form of income tax that is levied on its residents—but townships do not. According to Ohio law, townships cannot enact an income tax. If you live and work in a township, you are not subject to local income taxes.
Under Ohio law cities will impose an income tax on your employment income (wages) in the city where you work. You will also be subject to an income tax in your city of residence on the same wage income. Most cities allow some kind of credit against the residence tax for employment taxes paid to other cities, but the credit is generally not 100% of the employment tax paid. The amount of this double taxation is therefore impacted by your choice of residence location.
Other considerations are the costs of insurance and property taxes. Generally the farther you live away from big city centers the lower the cost of both of these expenses. Although this won’t drive a decision on where to live, it can have an impact on the decision process.
Choosing to live outside of city limits will allow you to avoid the residence tax portion of most city income tax structures. For example, let’s assume you earn wages of $200,000 in a city that taxes wages at 2%. The difference in city residence taxes between a owning a residence in Chagrin Falls or nearby Chagrin Township would save you $2,250 a year. So it is certainly worth taking a look at the taxes of surrounding communities if and when it is time to make a move.
There are many other meaningful ways to stretch your dollar in our new e-book: 12 (More) Great Ideas. Do you have a question about how this information applies to you? Email Jim Sacher, CPA or call him at 440-449-6800.