Affluent Ohioans get tax credits meant for those who aren’t
Posted October 31, 2018 in Press Releases
Business income deduction allows them to get means-tested tax breaks probably worth millions
Tens of thousands of upper-income Ohioans are qualifying for tax credits that seemingly are limited to those who have much lower incomes. It’s all legal – and it’s probably costing the state millions of dollars a year.
Policy Matters Ohio outlined in a report issued today how many taxpayers who claim a deduction for at least $100,000 in business income are also claiming a host of means-tested tax credits, including the child care and dependent credit, the retirement income credit and the $20 personal and dependent exemption credit. Ohioans are eligible for these and other income-tax credits, as well as the homestead exemption to local property taxes, only if their income is below a certain level. Other credits and exemptions vary based on income, with a higher credit or exemption going to those below certain income cut-offs. However, upper-income Ohioans who claim the business income deduction – also known as the LLC loophole – are able to sidestep these limits and claim larger credits and exemptions even though they make far more than the eligibility thresholds seem to suggest.
You can only qualify for these credits and exemptions, or benefit to the maximum degree, if your income is below $100,000, or in some cases much less. However, because the tax code allows taxpayers to deduct up to $250,000 in business income in determining their eligibility for them, tens of thousands of taxpayers with more than $100,000 in overall income are getting these breaks. Though the value of some can’t be precisely estimated, Policy Matters Ohio figured the cost could add up to more than $4.9 million a year.
"Legislators could easily fix this loophole in a loophole,” said Zach Schiller, Policy Matters research director and co-author of the report. “They need to step up to the plate and end this giveaway.”