Although many seniors live on a budget in their golden years, there are some financial benefits to the retired life, especially when tax time comes around. Social Security and other retirement wages aren’t considered earned income, which means they’re usually taxed differently than money earned through active work. However, in some states, some unearned income is taxed. Fortunately for residents, Ohio is not one of those states.
Ohio does not tax Social Security, although it does tax other forms of retirement income. Retirees in Ohio should be aware, however, that state laws concerning Social Security tax are different than federal guidelines. With that in mind, it is entirely possible that an individual would not have their Social Security taxed on the state level but pay taxes on the same money for their federal return.
Tax in Ohio and Social Security
Ohio residents will not pay taxes on Social Security income, even in instances where the IRS requires you to pay taxes. However, other forms of retirement income will face taxes, including any 401(k) or IRAs you have. These funds are taxed as regular income, with brackets affecting the percentage you’ll pay. If your non-Social Security income is between $5,250 and $10,500, for instance, your tax rate will be 0.990 percent. But Ohio has a relatively low cost of living and that, combined with the fact that it doesn’t tax Social Security earnings, makes it possible for some seniors to live solely off their Social Security.
Credits for Retirees
For retirees concerned about taxes on non-Social Security income, there are Ohio retirement credits that can help. In order to qualify for this credit, your adjusted gross income must be less than $100,000. You’ll be able to earn up to $200, depending on your income, along with an additional $50 for those whose income falls under $100,000. In some instances, the Social Security taxes you pay at the federal level may be tax deductible on Schedule A of your Ohio state tax return.
IRS Social Security Income Tax
Whether you pay federal taxes on your Social Security income depends on your earnings for the year. If your sole income comes from that Social Security check, you’ll be fine. However, if you have a part-time job or money from a 401(k) coming in, you may owe taxes on your Social Security earnings. One easy way to tell is to take half of the money you received from Social Security and add that to every other form of income you received during the year. Include any tax-exempt interest, as well. If this amount exceeds the IRS’s limits, you’ll owe taxes on your earnings. For those filing singly, if that amount you calculated is between $25,000 and $34,000, you’ll owe taxes on as much as 50 percent of the Social Security funds you received. If that calculation exceeds $34,000, up to 85 percent of your Social Security benefits will be taxed.
- SmartAsset: Ohio Retirement Tax Friendliness
- Ohio Department of Taxation: FAQs - Individual Income Tax
- Ohio Department of Taxation: Instructions for Filing
- SmartAsset: Is Social Security Income Taxable?
- Social Security Administration. "Retirement Benefits," Page 2. Accessed Feb. 19, 2020.
- Internal Revenue Service. "Publication 554: Tax Guide for Seniors," Page 12. Accessed Feb. 19, 2020.
- AARP. "Which States Tax Social Security Benefits?" Accessed Feb. 19, 2020.
- Iowa Legislature. "Senate File 2408 - Enrolled." Accessed Feb. 19, 2020.
- New Mexico Taxation and Revenue Department. "Does New Mexico offer a tax break to retirees?" Accessed Feb. 19, 2020.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.