Ohio Municipal Income Taxes

Finality Regarding the Application of the Pension Exemption to SERPs and Certain Similar Arrangements and Employer Withholding Pursuant to HB 166

Date: July 23, 2019

Ohio HB 166 completes the process that began decades ago regarding whether compensation arrangements commonly referred to as supplemental executive retirement plans or SERPs are exempt from Ohio municipal income taxes. This road began with the interpretation given to the municipal income tax ordinance exemption for “pensions,” which was debated through the Board of Tax Appeals and the Ohio state courts. The road then continued with the 2014 enactment of Ohio HB 5 and a state wide legislative municipal income tax exemption for “pensions,” but which was limited by municipal income tax ordinances to qualified retirement arrangements. Now, Ohio HB 166, effective for 2020, defines “pensions” to include all employer provided benefits that are payable after termination of service because of retirement or disability, without regard to whether the arrangement is a qualified retirement plan described in Section 401 of the Internal Revenue Code. Read here for more detail.

The detailed explanation discusses the following:

  • Arrangements that consist of employee contributions and elective deferrals are not covered.
  • Severance arrangements and wage continuation payments are not covered.
  • Employer provided benefits that are paid following retirement, but that could also be paid following employment termination prior to early retirement eligibility, might also be covered.
  • Not beneficial to arrangements where municipal income taxes already collected.
    First effective for arrangements subject to municipal income taxes in 2020.
    Under certain arrangements, new exemption could also be applicable to employees of tax-exempt organizations.
  • With respect to applicable arrangements, FICA taxes would be collected but no municipal income taxes collected. Up to now, FICA taxes and municipal income taxes were collected at the same time.

For more information please contact:

Francesco A. Ferrante
Thompson Hine LLP