If you live and work in different cities, you might be paying income taxes to both places.
Ohio is one of 11 states that allow municipalities to tax individuals both where they live and where they work. House Bill 503 would give voters more of a say in their income tax bills.
Here’s how local income taxes work now: More than two-thirds of Ohio’s municipalities, such as cities, towns and villages, levy an income tax. About 45% of those municipalities don’t charge individuals more for living or working elsewhere. That’s called a full reciprocity credit.
However, 29% of municipalities offer no credit, and 26% offer a partial credit, according to an analysis from the Ohio Legislative Service Commission. That means residents who live and work in different places pay income taxes to both municipalities.
House Bill 503, which passed the Ohio House of Representatives 65-25 on Feb. 25, would require local leaders to seek voter approval before collecting additional income tax revenue by reducing or repealing their reciprocity credits.
The proposed law would allow voters to put the issue on the ballot themselves to either add or increase the credit, thus reducing their tax bills. The bill that passed the House is not retroactive, so it would only affect future credit changes.
Are Ohioans overtaxed?
Rep. Heidi Workman, R-Rootstown, who championed the bill with Rep. Bill Roemer, R-Richfield, said the changes are needed to protect Ohioans from being double-taxed.
“In too many cases, credits are limited, capped or non-existent, resulting in hard-working Ohioans paying twice and losing take-home pay unfairly,” Workman said. She said the bill would “restore confidence that local tax policies align with what people want, not just what officials decide behind closed doors.”
But Rep. Elgin Rogers Jr., D-Toledo, said there’s no evidence of widespread reduction or elimination of reciprocity credits. City councils must approve any change in a public meeting − and face voters if their decision is unpopular.
“There’s no evidence of sneaky, combined ballot measures that confuse voters,” Rogers said. “If there were, I guarantee you, there’d be a lot of local elected officials out of a job.”
Business leaders, frustrated by Ohio’s complex income tax rules, support the changes in House Bill 503.
“From a business perspective, unpredictable changes to reciprocity credits create administrative challenges and compliance costs,” said Liz Baumgartner, director of economic development and tax policy at the Ohio Chamber of Commerce. “Employers must track multiple municipal tax rules, adjust payroll systems and respond to employee questions and refund requests.”
But local elected officials say the bill would be another hit to municipal budgets, which pay for police, fire and other needed services. Municipalities have already lost money because state lawmakers slashed the local government fund, eliminated the estate tax and approved recent property tax cuts.
“We know the municipal income tax system in Ohio isn’t perfect and that there are opportunities for improved efficiency. However, we approach these conversations with caution because previous reform efforts have resulted in lost funding for critical local services,” said Keary McCarthy, executive director of the Ohio Mayors Alliance, which represents the state’s 30 largest cities.
Abuses in municipal income tax collection?
Ohio House Speaker Matt Huffman, R-Lima, said the goal is fairness, not slashing municipalities’ money.
But he was critical of the Regional Income Tax Agency, which collects municipal income taxes. “When you hire an outside firm whose job it is to get more income, it’s much like if you tell the police officer you need to give out 50 tickets a day,” Huffman said. “I think we need to curb some abuses.”
RITA, in a statement, said it is a governmental entity created to administer and collect local income taxes for cities and villages in Ohio as an efficient and cost-effective shared service. “We administer and collect those local taxes consistent with the Ohio Revised Code and local ordinances.”
House Bill 503 would also require the Ohio Department of Taxation to study municipal income taxes with input from local leaders, business owners and residents. A final report would be due by Dec. 31.
The bill heads to the Ohio Senate for review and possible vote.
State government reporter Jessie Balmert can be reached at jbalmert@usatodayco.com or @jbalmert on X.
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This article originally appeared on Cincinnati Enquirer: Ohio bill could change how you pay local income taxes
Reporting by Jessie Balmert, Columbus Dispatch / Cincinnati Enquirer
USA TODAY Network via Reuters Connect
