Summary

Update the Ohio income tax implementation for tax year 2025 based on the 2025 IT 1040 Booklet.

Key Changes for 2025

Tax Rate Changes (already partially implemented)

• 0-$26,050: 0% (no change)
• $26,051-$100,000: 2.75% (no change from 2024)
• Over $100,000: 3.125% (reduced from 3.5% in 2024)
• 2026 Preview: Flat 2.75% for all income over $26,050

The rates.yaml file already has 2025 and 2026 values but needs the 2025 IT 1040 reference added.

Parameters Requiring 2025 Reference Updates

All parameters must have a 2025 IT 1040 booklet reference added, even if values remain unchanged. The reference format should be:

- title: Ohio Income Tax Form 2025 Instructions (Page X)
  href: https://dam.assets.ohio.gov/image/upload/v1767095693/tax.ohio.gov/forms/ohio_individual/individual/2025/it1040-booklet.pdf#page=X

Tax Rates and Thresholds

Personal Exemptions

Credits - EITC

Credits - CDCC

Credits - Exemption Credit

Credits - Senior Citizen

Credits - Retirement Income (Pension-Based)

Credits - Retirement Income (Lump Sum)

Credits - Lump Sum Distribution

Credits - Joint Filing

Credits - Non-Public School Tuition

Credits - Adoption (Repealed 2023)

Credits List

Deductions

Additions

Logic Changes Required

Verify Current Implementation

1. Tax calculation: Confirm the tax cliff implementation (flat $342 at $26,050 threshold) works correctly for 2025
2. Rate structure: Verify the 3-bracket system (0%, 2.75%, 3.125%) is correctly applied

Potential New Logic

1. Business Income Deduction: $250,000 business income exemption - verify if implemented
2. Campaign Contribution Credit: Being repealed in 2026 - add if not present for 2025

New Tests for 2025

Unit Tests Required

Create test files in policyengine_us/tests/policy/baseline/gov/states/oh/tax/income/:

1. Tax rate tests (oh_income_tax_2025.yaml):

   • Test $0 income -> $0 tax
   • Test $26,050 income -> $342 tax (threshold)
   • Test $68,050 income -> $1,497 tax (example from booklet)
   • Test $150,000 income -> with top bracket rate

2. Credit tests (add 2025 scenarios to existing files):

   • EITC with 2025 federal EITC values
   • Senior citizen credit (age 65+, income < $100,000)
   • Retirement income credit brackets
   • Joint filing credit at various income levels
   • CDCC at AGI thresholds ($20,000, $40,000)

3. Exemption tests:

   • Personal exemption at $0-$40,000 AGI -> $2,400
   • Personal exemption at $40,000-$80,000 AGI -> $2,150
   • Personal exemption at $80,000+ AGI -> $1,900

Programs That Could Be Modeled

The following programs exist in Ohio tax law and could potentially be modeled with existing variables:

1. Business Income Deduction - First $250,000 of business income is exempt (ORC 5747.01)
2. Pass-Through Entity Tax Credit - For owners of PTEs that elected to pay entity-level tax
3. Historic Building Rehabilitation Credit - Up to $75M annual cap (increased from $60M)
4. Opportunity Zone Investment Credit - Up to $50M annual cap (increased from $25M)
5. TMUD Credit (Technology and Machinery Used in Manufacturing Deduction) - $125M annual cap

Implementation Checklist

• Review 2025 IT 1040 booklet and note page numbers for each parameter
• Update all parameter files with 2025 references
• Verify all 2025 values match the official booklet
• Add 2025 test scenarios to existing YAML test files
• Create integration test with realistic 2025 household scenario
• Run make format and make test
• Update changelog

References

• 2025 Ohio IT 1040 Booklet
• Ohio Revised Code Chapter 5747 - Income Tax
• Ohio Budget Bill Tax Changes (2025)