If you’re a small business owner or employee in Ohio, understanding local Ohio payroll taxes can feel like navigating a maze. Between municipal taxes, school district taxes, and the concept of “reciprocity,” it’s easy to get confused. But once you understand the structure, it becomes much more manageable—especially when it comes to payroll.
Here’s what you need to know to ensure your taxes (and your employees’) are being withheld and reported correctly.
🏙️ “Worked In” vs. “Lived In” for City Taxes
Ohio municipal taxes are based on where you work and where you live.
- Worked-In City: If you physically work in a city that levies income tax, you owe that tax.
- Lived-In City: If you reside in a different city that also has a local income tax, you may owe them as well—but you might receive a credit for taxes paid to your work city.
This is where reciprocity comes in. Many cities offer some form of credit—often partial, sometimes full—but not all cities participate in reciprocity. If your resident city doesn’t offer credit, or offers less than what you paid to your work city, you could owe additional tax.
Example:
- You live in Hilliard (2%), and work in Columbus (2.5%).
- Columbus taxes your income at 2.5%.
- Hilliard offers a 2% credit for taxes paid to another city.
- Since you already paid more to Columbus than Hilliard requires, you don’t owe Hilliard anything additional.
But if the roles are reversed—or if your home city doesn’t offer reciprocity—you may owe both.
Many cities provide information on reciprocity limits on the municipality website. In order to determine your municipality and its rate, you can enter the worked-in or lived-in address using the Ohio Municipal Tax Finder.
🏫 Understanding School District Income Tax (SDIT)
In addition to city income taxes, Ohio residents may also owe school district income tax, depending on where they live.
This tax is based solely on your place of residence, not where you work. You can determine your school district and its rate using the Ohio School District Finder.
Employees are required to report their school district number on their Ohio withholding form (IT 4), and employers are responsible for withholding the correct amount.
💼 How to Handle It in Payroll
To properly withhold local taxes in Ohio:
- Collect complete address information from employees, including city and school district of residence.
- Determine the city where the employee physically works, and withhold that city’s tax.
- Determine if the employee’s home city requires additional withholding, based on whether they offer a credit for taxes paid to another city.
- Withhold school district income tax, using the correct SDIT code and rate based on the employee’s residence.
Accurate setup requires understanding how your city treats reciprocity and staying up to date on annual changes to local tax rates.
🔄 Recap on Reciprocity
Reciprocity allows residents to avoid being taxed twice on the same income when living in one city and working in another. However:
- Not all Ohio cities offer reciprocity.
- Among those that do, some limit the credit to a certain percentage.
- Some cities offer no credit at all, meaning employees will pay both city taxes in full.
It’s crucial to check each city’s specific rules when setting up or auditing payroll.
🧠 Final Thoughts
Ohio’s local tax system can be complex, but it’s manageable with the right approach. Ensuring proper withholding for municipal and school district taxes—and understanding how reciprocity works—is key to staying compliant and avoiding surprise tax bills.
If you’re not sure whether your payroll setup is accurate or if your employees are taxed correctly based on where they live and work, we can help. Full Speed HR specializes in helping small businesses handle these Ohio local payroll taxes requirements with confidence.
This post is for informational purposes only and should not be considered legal, tax, or payroll advice. Local tax requirements can vary by municipality and are subject to change. Employers and individuals should consult with a qualified tax professional, accountant, or legal advisor to ensure compliance with applicable laws.