Ohio Offers Tax Relief for P3 Loans and Unemployment Benefits

Ohio will comply with a host of recent changes to the federal tax code, including matching the federal treatment of canceled loans to the Paydaychampion Paycheck Protection Program and excluding a portion of unemployment benefits from income tax. income, under a bill signed Wednesday by the governor.

Republican Governor Mike DeWine has approved SB 18, a bill that will force Ohio to follow federal tax rules for certain coronavirus aid. The law provides for a tax exclusion of commercial activities for second-draw PPP loans Consolidated Appropriation Act , and specifies that expenses paid with covered loans may be deductible. The state has already offered this tax break for PPP loans canceled under the Coronavirus Aid, Relief and Economic Security Act .

Under the new law, which will take effect immediately, Ohio will comply with the temporary exclusion from federal income tax for the first $ 10,200 in unemployment benefits received by taxpayers with less than 150,000 $ of federal adjusted gross income, or $ 300,000 for co-filers. The law also complies with the federal allowance of a 30-year amortization period for certain residential rental properties and the temporary total deduction for business meals.

The law also allows the Ohio Tax Commissioner to temporarily waive any interest or penalty if a taxpayer fails to pay in full and on time state and school district income taxes owed on unemployment benefits received. in 2020, provided he files a timely return. Additionally, it provides a business activity tax exclusion for Ohio Bureau of Workers’ Compensation dividends paid to employers for 2020 and 2021.

As of January 1, 2022, the law will allow taxpayers to elect to withhold state income taxes from unemployment benefits. And from January 1, 2023, the law will also reduce the withholding tax rate for certain flow-through entities with non-resident investors to 3%, which is the personal tax rate for business income. Currently, Ohio entity-level taxes are 5% for qualifying investors who are individuals and 8.5% for qualifying investors who are not individuals to help reduce tax evasion, according to a tax note on the bill.

Reducing the withholding tax rate will not affect state tax collections, as taxpayers who withhold excess taxes can claim refunds. However, the lower rate will result in a one-time reduction in income once the final refunds for the higher tax rates are paid in arrears for the previous fiscal year, the tax note says.

In total, the bill is expected to provide more than $ 200 million in tax relief to Ohio residents and businesses, according to the tax memo.

The law project adopted unanimously through the General Assembly. The measure’s main sponsor, Senator Kristina Roegner, R-Hudson, was not immediately available to comment on the bill’s enactment.

But Roegner had said, when the bill received its final passage, that the legislation was important for simplifying tax rules and providing taxpayer relief during the ongoing spread of the coronavirus.

“With an already complex tax season, further complicated by the pandemic, it is critical that we make these adjustments to ensure the best interests of Ohio taxpayers are protected,” Roegner said in a statement after lawmakers approved. the bill on March 24.

Ohio does not levy corporate income tax, but businesses are subject to its Business Activities Tax, a gross receipts tax. David Ebersole of BakerHostetler told Law360 that the law will simplify tax reporting for businesses that have received PPP loans because excluding gross receipts from canceled loans is tantamount to not recognizing them as income for federal tax purposes. . He also noted that the law equalizes the state tax treatment for first and second draw PPP loans.

Removing disparities in withholding tax rates for certain flow-through entities and aligning them with the corporate income tax rate for individuals is also a significant change for businesses, Ebersole said.

“This has been a problem for some time,” he said, adding that this provision could reduce the amount of refund claims that taxpayers may have to file.

Representatives for DeWine and leaders of the Democratic minority in the state House of Representatives and Senate did not immediately respond to requests for comment.

– Additional reports from Asha Glover. Edited by Neil Cohen.

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