What Ohio’s New Budget Means for Taxpayers: A Look at the Flat Tax Shift in 2026

Ohio’s newly signed budget bill is making headlines, and for good reason. Alongside its broad funding provisions, it introduces one of the most significant tax overhauls the state has seen in years: the move to a flat income tax. Starting in 2026, Ohio will adopt a 2.75% flat tax rate on income above a certain threshold. This change has big implications for residents and business owners alike—and now’s the time to understand what’s ahead and start planning accordingly.

Goodbye Tax Brackets, Hello Flat Rate

For decades, Ohio has used a tiered, progressive income tax system, meaning the more you earned, the higher your marginal rate. But beginning with the 2025 tax year, the top individual rate will drop from 3.5% to 3.125%. That’s just the beginning.

In 2026, all Ohio taxpayers earning more than $26,050 will be taxed at a flat 2.75% rate. Those with income at or below that threshold will continue to owe no state income tax.

This move is meant to simplify the state’s income tax structure and make Ohio more competitive with its neighbors. For high earners, the change could result in noticeable savings. For middle-income taxpayers, it might not make a huge difference year-over-year, but it could slightly lower your overall liability compared to the old brackets.

What’s Changing Beyond the Rate?

There are other important adjustments tucked into the budget that could affect households at different income levels. Notably, starting in 2026, individuals with taxable income over $500,000 will no longer be able to claim the personal, spousal, or dependent exemptions. They’ll also lose access to the joint filing credit. For high-income taxpayers, this may offset some of the benefit of the lower flat tax rate.

It’s also worth noting that the separate 3% tax on business income (typically relevant for pass-through entities like partnerships and S corporations) will remain unchanged—for now.

What Does This Mean for You?

In theory, a flat tax means easier math come tax season—but there’s more to the story. While the system will become simpler, the impact will vary depending on your income level and filing status.

If your income is near or just above the $26,050 threshold, your state tax bill might increase slightly compared to today’s structure. On the other hand, if you’re earning well into the six figures, the flat rate could represent a tax cut. That’s one reason critics have pointed out that most of the savings from the new system will flow to the top earners.

And while the tax cuts could be good news for some, they come at a cost: the flat tax is expected to reduce Ohio’s revenue by more than $1.1 billion annually. That raises big questions about how the state will maintain services and public programs moving forward.

What Should You Do Now?

With changes rolling out over the next two years, now is the time to think ahead. Here are a few proactive steps Ohio taxpayers can take:

• Review your withholding: Check your current payroll tax withholdings and make adjustments to avoid surprises when the new rates take effect.
• Meet with your tax advisor: Everyone’s tax situation is different, and changes like this can have ripple effects. If you’re a high-income earner, or your income is close to the new exemption threshold, a professional review of your situation is a smart move.
• Reassess your filing strategy: Married couples should revisit the pros and cons of filing jointly versus separately. The flat tax and changes to exemptions could shift the balance of what’s most advantageous.
• Keep an eye on updates: As implementation nears, there may be additional guidance or technical changes to the law. Staying informed will help you make better decisions.

Ohio’s shift to a flat income tax is a big deal—and like most tax changes, it comes with both opportunities and challenges. Whether you’re planning for the short term or looking at your long-term financial picture, a little preparation now can go a long way.

If you have questions about how this change might affect you or your business, don’t hesitate to reach out. Our team is here to help you navigate the new rules and make sure you’re set up for success.