CPA & Business Advisory Blog

Change to Ohio Legislation to Benefit Companies That Increase Payroll

Recently, Ohio Governor John Kasich signed legislation that may reduce the tax burden on Ohio taxpayers.  The legislation will give taxpayers who increase payroll by 10% over the preceding year a more favorable Ohio depreciation adjustment.

For example:

  • Under current law, Ohio requires that taxpayers add back five-sixths of bonus depreciation expense as well as any §179 (in excess of $25,000) expense claimed on their federal tax returns.  If a taxpayer had claimed $600,000 of bonus depreciation in a given year, $500,000 would not be deductible for Ohio income tax purposes and would result in an additional $29,600 in taxes (assuming the highest marginal bracket).  On top of the additional tax in the current year, the taxpayer would have to wait five years to recover this additional tax (one-fifth deduction in each of the following five years).
  • Under the new legislation, the same taxpayer would add back two-thirds of bonus depreciation, or $400,000 of income, resulting in $23,680 of additional tax.  In addition to the almost $6,000 in tax savings, the taxpayer would only have to wait two years to recover the additional tax paid in the current year (one-half deduction in each of the following two years).  In addition, if the increase in income taxes withheld by the taxpayer during the current taxable year is more than the total bonus depreciation expense or §179 expense claimed on their tax return then no add back would be required and Ohio would accept the Federal deductions.

Have questions about this add-back of enhanced depreciation? Contact our Tax Planning & Preparation Group at 440-449-6800.

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