Summary of the Ohio Senate Bill 18

While this legislation is awaiting Ohio Governor Mike DeWine’s signature, the “emergency” aspect of this legislation means it will become effective immediately and enacted into law upon the Governor’s signature.

Business Provisions

  • The allowance of a 30-year depreciation period for certain residential rental property

  • The temporary allowance of a full deduction for business meals (generally, business meals are only 50% deductible)

  • A clarification of the tax treatment of Paycheck Protection Program loan forgiveness, including a clarification that expenses paid with covered loans can be deductible (for both “first draw” and “second draw” loans)

  • An extension of the payment deadline for certain deferred payroll taxes (including certain self-employment taxes)

  • The extension of the work opportunity tax credit (Ohio allows a deduction for employee wages that could not be deducted from the business owners’ FAGI due to the work opportunity credit)

  • The extension of an exclusion for certain employer payments of student loans

  • An extension of the limitation on excess business losses for noncorporate taxpayers

  • An exclusion from gross income for Restaurant Revitalization Fund (RRF) grants and Targeted Economic Injury Disaster Loan (EIDL) advances

Pass-Through Entity Withholding Tax

Under continuing law, the Ohio income tax applies to income received by an owner or investor in a pass-through entity (PTE) from the PTE’s business activities in the state. (Passthrough entities include S corporations, partnerships, and limited liability companies treated for federal income tax purposes like partnerships.) Under current law, in order to ensure collection of the tax from nonresident individuals and entities – which, aside from their ownership of the PTE, would not be required to file an individual tax return – a PTE is required to withhold the income tax due from its nonresident investors. This “withholding tax” is imposed directly on the PTE, even though the underlying tax liability belongs to the investors.

The bill sets the rates at which PTEs remit taxes on nonresident investor income equal to the 3% income tax rate that applies to taxable business income, effectively reducing the PTE withholding rates from 5% to 3% for individual investors and from 8.5% to 3% for nonindividual investors. The bill does not change an existing alternative means for a PTE to report and pay income taxes owed by its noncorporate investors: a PTE may file a composite return (Form 4708) covering its investors and pay tax for them at the highest of the graduated tax rates for nonbusiness income (4.797% currently).

The rate changes apply to a PTE’s taxable years beginning on or after January 1, 2023.