Ohio's 2025 State Tax Changes – What Business Owners and Residents Need to Know

As the national conversation heats up around the elimination of state income taxes, Ohio is inching closer to making it a reality. The 2025 tax year marks a significant shift in how the Buckeye State is managing individual and business taxes — and if you live or run a business in Ohio, these changes could save you money (or cost you if you’re not prepared).

Let’s break down the most impactful updates and what they mean for your planning going forward.

📉 Personal Income Tax Reform

Ohio is continuing its trend of flattening and lowering income tax rates, aiming to adopt a flat 2.75% rate by 2026. Here’s where we stand in 2025:

• Income over $26,050 is now taxed at a 3.125% flat rate (down from 3.5%)
• Those under this threshold continue to pay 2.75%
• Ohio residents earning less than $26,050 remain fully exempt

This gradual flattening is part of a broader movement among Republican state legislators to eliminate income tax altogether, aligning Ohio more closely with tax-free states like Florida and Texas.

Planning Tip:
High earners or those with multiple income streams should take a proactive look at tax deferral strategies to benefit from the expected 2.75% flat rate in 2026.

🏢 Changes to the Commercial Activity Tax (CAT)

Ohio’s CAT — a gross receipts tax levied on businesses — has been overhauled:

• The exemption threshold increases from $3 million to $6 million in 2025
• The $150 annual minimum tax has been eliminated
• Businesses under the threshold owe nothing

This makes Ohio one of the most business-friendly tax environments in the Midwest, especially for small and mid-sized companies operating with tight margins.

Why It Matters:
If your business earns under $6M annually, you’ve just received a de facto tax break. This also simplifies compliance and reduces paperwork — no need to file a CAT return if you’re under the new limit.

🔁 What Business Owners Should Do Now

1. Re-evaluate Entity Structure
   With CAT thresholds changing, it may make sense to re-evaluate whether your business should remain a sole proprietorship, LLC, or S-corp.
2. Use the Windfall Wisely
   If you're saving $1,000+ per year in CAT or minimum tax savings, reinvest it. This could mean better payroll support, new equipment, or even funding for strategic planning with a tax advisor.
3. Document Gross Receipts Carefully
   Even if you’re under the threshold, make sure your books are audit-proof in case you're ever questioned about qualification.

🧠 Looking Ahead

Ohio is positioning itself to be a low-tax growth engine in the region. With a proposed flattening of income tax and business tax relief already in place, now is the time to reassess your personal and business tax strategies.

At Dresden Tax and Business, we specialize in helping Ohio residents navigate these state-level changes with clarity and confidence. Whether you’re filing a simple return or managing a multi-entity portfolio, we’ll help ensure you’re aligned with the newest rules — and getting the biggest results.