Key figures
Ohio advisory
2026, with sources
Credits and the CAT ceiling
Ohio’s research and development investment tax credit is 7% of qualified Ohio research expenses above the average of the three preceding years. It offsets the Commercial Activity Tax only, is nonrefundable and carries forward for seven years. Because the CAT now excludes the first $6 million of Ohio receipts, a startup typically has no tax for the credit to offset until it is well past seed stage, and credits earned years earlier can expire unused.
For the founders personally, H.B. 96 moved Ohio to a flat 2.75% individual rate on income over $26,050 from 2026. Ohio starts from federal adjusted gross income, so federal exclusions such as QSBS carry through to the state return.
Remote hires and the local layer
The decision that creates the most Ohio work is where people sit. A remote employee in Ohio brings a state withholding account, an ODJFS unemployment account, Ohio BWC coverage, municipal withholding for the city they work in (after the 20-day rule) and, if they live in a taxing school district, school district withholding. It also gives the company a physical presence for sales tax and a municipal net profit filing obligation in that city.
Ohio has reciprocity with Indiana, Kentucky, Michigan, Pennsylvania and West Virginia, so an Ohio office that hires across those borders withholds for the employee’s home state instead. Reciprocity covers state tax only; it does not stop Ohio municipal tax for work performed in an Ohio city.
Where founders go wrong in Ohio
Most Ohio mistakes come from the layers below the state: city income tax, school district tax and the state-run workers’ compensation fund.
- Assuming “no corporate income tax” means no business tax, and missing the city net profit return.
- Withholding municipal tax for the office city when the employee actually works from home in another city.
- Buying a private workers’ compensation policy; Ohio’s BWC is the insurer for most private employers.
- Treating SaaS as untaxed; Ohio taxes business-use electronic information services and data processing.
- Skipping the unclaimed funds “NONE” report because there was nothing to report.
The federal baseline
This page covers what Ohio adds. The federal rules underneath it apply here too.
Common questions
Is Ohio’s R&D credit useful to a startup?
Rarely, early on. The credit is 7% of the increase in Ohio research spending over the prior three-year average, but it is claimed against the Commercial Activity Tax, is not refundable, and carries forward only seven years. A startup below the $6 million CAT exclusion has no CAT for the credit to reduce, so it can’t use the credit until its Ohio receipts grow past that line.
Do Ohio founders keep the federal QSBS benefit?
Ohio’s individual income tax starts from federal adjusted gross income, so a gain the IRS excludes never enters the Ohio base. What remains is municipal and school district income tax, which follow their own definitions; capital gains are generally not taxable wages or net profits for a city.
Advisory next door
- INIndiana advisoryIndiana offers a nonrefundable research credit and fixed-date conformity that the legislature updates selectively; the remote-hire question is always which county.
- KYKentucky advisoryKentucky’s state rates are moderate, but local occupational license taxes on wages and profits, a sales tax that reaches SaaS and a $175 minimum LLET catch startups, and 2026 conformity skips Section 174A.
- MIMichigan advisoryMichigan’s refundable R&D credit, new for 2025, pays even pre-revenue companies; the rest of the advisory work is the Section 174 decoupling and 24 city income taxes.
- PAPennsylvania advisoryPennsylvania’s R&D credit can be sold, which makes it worth applying for before profit. Pennsylvania doesn’t follow federal QSBS, and its corporate rate keeps falling to 4.99% in 2031.
- WVWest Virginia advisoryWest Virginia’s income tax keeps falling, its R&D credit requires certification before the work, and its 14-day new-hire rule, covering contractors too, catches out-of-state employers.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- EquityStock options, 409A valuations and vesting for startupsHow option strike prices are set by a 409A valuation, how vesting and the cliff work, and why ASC 718 makes every grant an expense on your P&L.
- RunwayBurn rate and runway: how to calculate them correctlyGross burn, net burn and months of runway, done the way an investor checks them: from cash, averaged, and with the hires you’ve already committed to.
More of the Ohio guide
- AccountingAccounting and state tax in OhioCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in OhioSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in OhioPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in OhioWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in OhioRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.