Ohio income tax rates changed significantly when Governor DeWine signed House Bill 110 into law on June 30, 2021. This two-year budget bill reduced personal income tax rates by roughly 3%, eliminated the top tax bracket, extended municipal payroll withholding deadlines for remote employees, and created a new sales tax exemption for employment services. Employers, employees, and businesses that use staffing agencies all need to understand how these changes affect their tax obligations.
The central question this article answers is simple: what do the HB 110 income tax rate cuts and related provisions actually mean for your bottom line, and what steps should you take to capture the savings? The sections below walk through each major change and the practical actions tied to it.
How Ohio HB 110 changed personal income tax rates
HB 110 reduced Ohio income tax rates by about 3% and trimmed the bracket structure. Under the prior law, Ohio taxed five income tiers above the zero-tax threshold; under HB 110, four taxable tiers remain. The most notable change was the elimination of the top 4.797% bracket on income above $221,300, with the prior 4.413% rate on income between $110,651 and $221,300 replaced as well. Under the new Ohio tax brackets, the highest rate is now 3.99% for all income above $110,650. The Ohio Department of Taxation publishes the official rate schedules and forms at tax.ohio.gov.
Here is how the updated Ohio income tax rates compare to the prior year:
2021 rates under HB 110:
- $0 to $25,000: No tax imposed
- $25,001 to $44,250: 2.765%
- $44,251 to $88,450: 3.226%
- $88,451 to $110,650: 3.688%
- $110,651 and above: 3.99%
2020 rates (prior law):
- $0 to $22,150: No tax imposed
- $22,151 to $44,250: 2.85%
- $44,251 to $88,450: 3.326%
- $88,451 to $110,650: 3.802%
- $110,651 to $221,300: 4.413%
- $221,301 and above: 4.797%
The 3% across-the-board reduction benefits every Ohio taxpayer with income above $25,000, but higher earners see the largest absolute savings because of the eliminated brackets. A taxpayer with $250,000 in income, for example, now pays a top rate of 3.99% rather than 4.797%, a difference of more than $2,000 in annual tax liability. Coordinating these state rate changes with federal planning is one of the areas where proactive tax advisory services help individuals and business owners model the actual savings.
The expanded zero-tax threshold
Another practical change in the new Ohio tax brackets is the increase of the zero-tax threshold from $22,150 to $25,000. This means roughly $2,850 of additional income escapes taxation entirely for every filer. While the dollar savings are modest, in the range of $80 at the lowest bracket rates, this adjustment removes many lower-income Ohioans from the income tax rolls altogether.
Municipal payroll withholding rules for remote workers
The Covid-19 pandemic created a major Ohio payroll tax withholding question: when employees work remotely from a different municipality, which city gets the tax revenue? Ohio addressed this initially through House Bill 197 in March 2020, which required employers to continue withholding payroll taxes for the city where employees normally worked, even if those employees were working from home in a different municipality.
HB 197 also suspended the standard 20-day grace period for updating employee withholding. Under normal rules, employers must update withholding within 20 days when an employee’s work location changes. During the state of emergency, that clock was paused.
The extended deadline under HB 110
Governor DeWine lifted Ohio’s state of emergency on June 18, 2021. Under HB 197’s original terms, employers would have needed to update withholding for remote employees by July 18, 2021, just 30 days later. HB 110 gave employers significantly more time. The new deadline to update Ohio payroll tax withholding for employees who continued working remotely was December 31, 2021.
This extension mattered for practical reasons. Many employers had hundreds or thousands of employees working in locations different from their pre-pandemic offices. Updating withholding requires identifying each employee’s actual work location, determining the correct municipal tax rate, and adjusting payroll systems accordingly. A 30-day window would have been extremely difficult to meet. The December 31 deadline gave payroll departments a realistic timeframe to make accurate changes.
How Ohio employees can request a remote work tax refund
HB 110 included an important provision for employees affected by the emergency withholding rules. For the 2021 tax year, employees could request a refund of municipal income tax that was withheld for their principal place of work if they actually performed their job from a different location during the state of emergency.
This Ohio remote work tax refund is especially valuable for employees in two situations. First, employees who live in a municipality with a lower tax rate than their employer’s city can reclaim the difference. Second, employees who live in a city that does not offer a full 100% credit for taxes paid to other municipalities can recover the overcollected amount. The IRS provides general guidance on state and local income tax withholding that frames how these payroll obligations interact at the federal level.
Steps to claim the refund
To qualify for the refund, the employee must obtain a statement from their employer confirming two facts: the number of days the employee worked at the principal place of business (rather than remotely), and that the employer did not already refund any withholding directly to the employee. Without this employer statement, the refund claim cannot be processed.
Employees should file the refund request with the municipality that received the withholding, not with the state of Ohio. Each municipality may have its own refund procedures, so employees should check with their local tax authority for specific filing requirements and deadlines.
Ohio sales tax exemptions now include employment services
Beginning October 1, 2021, employment services became exempt from Ohio sales tax under HB 110. This is a meaningful change for businesses that rely on staffing agencies and recruiting firms, as these services were previously subject to the state’s 5.75% sales tax (plus any applicable county sales tax).
The exemption covers two categories of employment services:
- Temporary placement services: When a business hires a third-party staffing agency to supply temporary workers who are supervised by the business, those staffing fees are no longer subject to sales tax.
- Employment placement services: When a business uses a recruiting firm or placement agency to help find and fill open positions, those placement fees are also exempt.
Why this exemption matters for Ohio businesses
The cost impact is straightforward. A company spending $500,000 annually on temporary staffing services in a county with a combined 7.25% sales tax rate saves $36,250 per year under this exemption. For industries that depend heavily on temporary labor, such as manufacturing, warehousing, healthcare, and hospitality, the savings are substantial.
This change also simplifies compliance. Staffing agencies no longer need to collect and remit sales tax on covered services, and their business clients no longer need to track and pay use tax on employment services purchased from out-of-state providers. The exemption applies broadly to all qualifying employment services performed on or after October 1, 2021, regardless of when the underlying contract was signed.
What Ohio employers and taxpayers should do now
HB 110 created several action items for different groups. Individual taxpayers should review their withholding to ensure it reflects the lower Ohio income tax rates. Employees who worked remotely during the state of emergency should gather documentation and file refund claims with the appropriate municipality. Employers should confirm their payroll systems are updated to reflect both the new state income tax rates and the correct municipal withholding locations.
Businesses that use staffing agencies should verify that their vendors stopped collecting sales tax on employment services as of October 1, 2021, and should review past invoices to determine whether any overpaid tax can be recovered.
Frequently Asked Questions
What are Ohio’s income tax rates under HB 110?
Ohio HB 110 set four income tax brackets starting in 2021: no tax on income up to $25,000, 2.765% on income from $25,001 to $44,250, 3.226% from $44,251 to $88,450, 3.688% from $88,451 to $110,650, and 3.99% on all income above $110,650. These rates represent a 3% reduction from the prior year.
How did HB 110 change Ohio’s tax brackets?
HB 110 eliminated the top 4.797% bracket on income above $221,300. The previous 4.413% bracket (income from $110,651 to $221,300) and that top bracket were consolidated into a single top rate of 3.99% for all income above $110,650, leaving four taxable tiers above the zero-tax threshold.
Are employment services exempt from Ohio sales tax?
Yes. Starting October 1, 2021, Ohio exempts both temporary staffing services and employment placement services from sales and use tax. Businesses that hire temporary workers through staffing agencies or use recruiting firms to fill positions no longer pay sales tax on those services.
Can Ohio employees get a refund for remote work municipal tax withholding?
Employees who worked remotely during Ohio’s state of emergency can request a refund of municipal income tax withheld for their principal place of work for the 2021 tax year. They need a statement from their employer confirming days worked on-site and that no direct refund was already issued.
When was the deadline for Ohio employers to update remote worker withholding?
HB 110 extended the deadline to December 31, 2021. Without this extension, employers would have had only 30 days after the June 18, 2021 end of the state of emergency to update municipal payroll withholding for all remote employees.
How does Ohio’s remote work withholding affect employees in lower-tax cities?
Employees who live in a municipality with a lower income tax rate, or in a city that does not grant a full credit for taxes paid to another municipality, may have overpaid municipal taxes during the state of emergency. These employees can file a refund claim with the municipality that received the excess withholding.
