Ohio Resident Credit: Who Qualifies and How to Claim

The Ohio resident credit is a nonrefundable tax credit for Ohio residents who have paid income tax to another state. Its purpose is to prevent double taxation, which occurs when the same income is taxed by both Ohio and the other state. By allowing a credit for taxes paid elsewhere, Ohio acknowledges the tax liability already satisfied and reduces the resident’s Ohio tax bill accordingly.

Determining Eligibility for the Credit

To qualify, an individual must be an Ohio resident who earned income and paid income tax on that same income to another state or the District of Columbia. This income can come from various sources, including wages, business activities, or other taxable gains.

Ohio has tax reciprocity agreements with its five neighboring states: Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. These agreements mean that Ohio residents who earn only wages or salaries in one of these states should not have that state’s income tax withheld. If an employer in a reciprocity state mistakenly withholds income tax, the taxpayer cannot claim the Ohio resident credit for that amount.

The correct procedure in cases of erroneous withholding is to file a nonresident tax return with that state to obtain a full refund. While wages and salaries from these states are not eligible for the credit, other types of income, such as business income or lottery winnings, may still qualify if tax was paid to that state on that income.

Information Needed to Complete the Ohio Schedule IT RC

To calculate the credit, you will need a signed copy of the income tax return filed with the other state. From this return, you must identify two figures: the portion of your adjusted gross income taxed by the other state and the amount of that state’s income tax liability.

This information is used to complete the Ohio Schedule IT RC, “Ohio Resident and Nonresident/Part-Year Resident Credit Calculation.” On the form, you will input the name of the other state, the income subject to tax there, and the tax amount paid.

Calculating the Credit Amount

The Ohio resident credit is limited to the lesser of two amounts: the tax paid to the other state, or the Ohio tax that would be due on the same income. This limitation prevents a taxpayer from receiving a credit larger than their actual tax liability on the out-of-state income. The Ohio Schedule IT RC is used to perform this calculation.

For example, a taxpayer with an Ohio tax liability of $2,000 also earned income in Illinois and paid $500 in tax to that state. The first amount is the $500 paid to Illinois. If the Ohio tax on that same income is calculated to be $600, the taxpayer compares the two figures.

Since the credit is the lesser of the two, the allowable Ohio resident credit would be $500. If the Ohio tax on that income was only $400, the credit would be limited to $400, even though $500 was paid to Illinois.

Claiming the Credit on Your Ohio Tax Return

Once the resident credit amount has been determined using the Ohio Schedule IT RC, the final step is to claim it on the Ohio income tax return, the IT 1040. The calculated credit figure is transferred to the designated line for nonrefundable credits, which directly reduces your Ohio tax liability.

To finalize the claim, you must attach two documents to your Ohio IT 1040 filing: the completed Ohio Schedule IT RC and a complete copy of the income tax return filed with the other state. Submitting these supporting documents is mandatory.