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Federal Payroll Taxes Impacting Ohioans (2025)

Federal taxes constitute a significant portion of payroll deductions for Ohio workers and compliance responsibilities for employers.

Federal Income Tax Withholding (FITW): How It Works

Federal Income Tax Withholding (FITW) operates on a pay-as-you-go principle, where employers withhold estimated income tax from employee paychecks throughout the year. The amount withheld is primarily determined by the employee's Form W-4, Employee's Withholding Certificate. The Form W-4 underwent significant revisions starting in 2020, moving away from allowances for newer forms and towards a more comprehensive approach that considers filing status, dependents, other income, and potential deductions to improve withholding accuracy. Employers must be equipped to handle both the pre-2020 W-4 format (based on allowances) and the 2020-or-later format. This dual system can add complexity to payroll administration, and employees using older W-4s might find their withholding is less precise compared to those utilizing the newer form's detailed adjustments.

The actual FITW calculation depends on the employee's gross pay for the period, the pay frequency (weekly, bi-weekly, etc.), their filing status, and the specific information provided on their W-4. Employers typically use either the Percentage Method or the Wage Bracket Method, detailed in IRS Publication 15-T, Federal Income Tax Withholding Methods, to determine the correct withholding amount. The IRS also provides resources like the Tax Withholding Estimator tool to help employees accurately complete their Form W-4. Employers may also implement IRS-compliant electronic systems for receiving Forms W-4.

While specific 2025 federal brackets are finalized by the IRS closer to the tax year, the structure remains progressive, meaning higher portions of income are taxed at higher rates. Below is a simplified overview based on typical structure (final 2025 figures should be confirmed via official IRS publications like Pub 15-T):

(Note:This table shows marginal rates.)

FICA Taxes (2025): Social Security & Medicare Explained

FICA stands for the Federal Insurance Contributions Act. These taxes fund two major federal programs: Social Security (technically Old-Age, Survivors, and Disability Insurance or OASDI) and Medicare (hospital insurance). FICA taxes are mandatory and are shared equally between the employee and the employer. Self-employed individuals are responsible for both the employee and employer portions, often referred to as SECA (Self-Employment Contributions Act) tax, though they can deduct one-half of the SECA tax paid when calculating their adjusted gross income.

For 2025, the FICA tax components are:

• Social Security Tax: The tax rate is 6.2% for the employee and 6.2% for the employer (12.4% total for self-employed). This tax applies only up to a certain amount of earnings each year, known as the wage base limit or contribution and benefit base.
• Social Security Wage Base Limit (2025): For 2025, the maximum amount of earnings subject to Social Security tax is $176,100. Any earnings above this limit are not subject to the Social Security tax. This limit is adjusted annually based on changes in the National Average Wage Index, meaning the maximum potential Social Security tax liability tends to increase each year for higher earners, even if the tax rate stays the same.
• Medicare Tax: The tax rate is 1.45% for the employee and 1.45% for the employer (2.9% total for self-employed). Unlike Social Security, there is no wage base limit for the Medicare tax; it applies to all covered earnings.
• Additional Medicare Tax: Employees earning above certain thresholds must pay an Additional Medicare Tax of 0.9%. This tax is only paid by the employee; there is no employer match. The thresholds are $200,000 for Single, Head of Household, and Qualifying Widow(er) filers; $250,000 for Married Filing Jointly; and $125,000 for Married Filing Separately. Employers are required to begin withholding this additional 0.9% in the pay period when an employee's wages exceed $200,000 for the calendar year, regardless of the employee's filing status. This necessitates careful tracking of cumulative wages by the employer throughout the year.

Ohio State Payroll Taxes Breakdown (2025)

In addition to federal taxes, Ohio employers and employees must account for state-specific payroll taxes.

Ohio State Income Tax (SIT)

Ohio levies a state income tax (SIT) on residents' income and nonresidents' income earned within the state (unless a reciprocity agreement applies). Like the federal system, Ohio's SIT is withheld by employers from employee paychecks based on information provided on the Ohio Form IT 4 (Employee's Withholding Exemption Certificate). Key factors determining withholding include the employee's gross pay, pay frequency, Ohio filing status, and the number of Ohio withholding allowances claimed.

For 2025, Ohio utilizes a simplified, progressive tax bracket system. Recent legislative changes reduced the number of brackets and lowered the top marginal rate. The rates apply to Ohio taxable income:

Source: Ohio Department of Taxation - Annual Tax Rates

It is important to note that Ohio does not offer its own standard deduction similar to the federal one. Instead, Ohio allows for specific adjustments to income (deductions) listed on the Ohio Schedule of Adjustments (part of Form IT 1040) and various tax credits. Examples include deductions for contributions to Ohio Homebuyer Plus savings accounts or military pay adjustments. Credits may be available for retirement income, child/dependent care expenses, or certain educational expenses. The absence of a standard deduction makes these specific deductions and credits particularly important for reducing an individual's overall Ohio tax liability. The recent bracket consolidation primarily reduced taxes for higher earners by lowering the top rate from previous levels, while the 0% bracket protects those with lower incomes.

Ohio has tax reciprocity agreements with its neighboring states: Indiana, Kentucky, West Virginia, Michigan, and Pennsylvania. This means residents of these five states who work in Ohio generally do not owe Ohio income tax on their wages; their income tax liability is typically with their home state. Employers do not need to withhold Ohio SIT for these employees, simplifying compliance, but must accurately track employee state residency.

Ohio School District Income Tax (SDIT)

A unique feature of Ohio's tax system is the School District Income Tax (SDIT). This is a separate income tax levied by individual public school districts to fund local schools. Crucially, not all school districts impose this tax; as of early 2025, approximately 210 districts did. The tax applies to individuals residing within the boundaries of a taxing school district.

Identifying the correct school district, its specific tax rate, and its tax base type is essential for compliance. Rates vary significantly between districts and are subject to change, expiration, or renewal based on voter approval. The Ohio Department of Taxation provides an indispensable online tool called "The Finder" for determining the correct school district, its identification number, tax rate, and tax type based on a specific address.

There are two methods school districts use to calculate the tax base:

• Traditional Base: Generally based on the Ohio Adjusted Gross Income (line 5 of the Ohio IT 1040) plus any business income deducted on Ohio Schedule A.
• Earned Income Base: Based only on wages, salaries, tips, and other compensation included in "earned income," excluding items like interest, dividends, capital gains, and retirement income.

This distinction means that two individuals living in different taxing districts with identical Ohio Adjusted Gross Income could have different SDIT liabilities if their income composition differs (e.g., one has significant investment income) and the districts use different tax bases. This adds a layer of complexity for payroll systems.

Employees residing in a taxing district should complete Ohio Form IT 4, indicating their school district name and number, and provide it to their employer to ensure correct SDIT withholding. SDIT withholding is typically identified on Form W-2 using a specific 4-digit code. The combination of varying rates, two tax bases, frequent changes, and the need for address-specific lookup makes SDIT arguably the most complex component of Ohio payroll administration for employers operating across multiple locations and a common point of confusion for employees. Accurate residency information is absolutely critical.

Ohio State Unemployment Tax (SUTA) - Employer Guide

Ohio's State Unemployment Tax Act (SUTA) establishes a fund to provide temporary financial assistance to eligible workers who become unemployed through no fault of their own. In Ohio, SUTA tax is paid solely by employers; there is no employee withholding for this tax.

Key figures for Ohio SUTA in 2025 include:

• Taxable Wage Base: Employers pay SUTA tax on the first $9,000 of wages paid to each employee during the calendar year. This relatively low wage base means the full annual SUTA liability for many employees is often met early in the year.
• Tax Rates:
  • New Employers (Non-Construction): The standard rate for new employers (not yet eligible for an experience rate) is 2.7%.
  • New Employers (Construction): New employers in the construction industry have a higher rate of 5.6%.
  • Experienced Employers: Rates are calculated based on an employer's individual "experience rating," which considers factors like contributions paid, taxable wages reported, and unemployment benefits charged against their account. For 2025, these base experience rates range from 0.4% to 10.1%.
  • Mutualized Rate: In addition to the experience rate, all experienced employers pay a mutualized rate. This rate helps cover costs not attributable to specific employers, such as benefits paid due to business closures or, recently, pandemic-related claims charged to the mutual account. For 2025, the mutualized rate is 0.1%, a reduction from 0.5% in previous years, suggesting the state's shared unemployment fund is recovering.
  • Total Experienced Rate: The total SUTA rate for an experienced employer is their calculated experience rate plus the 0.1% mutualized rate, resulting in a range of 0.5% to 10.2% for 2025.
  • Delinquency Rate: Employers who fail to provide necessary wage information for rate calculation are assigned a punitive delinquency rate, which is 12.8% for 2025.

Employers typically receive their specific SUTA rate notice from the Ohio Department of Job and Family Services (ODJFS) around December 1st for the upcoming calendar year. They are required to file quarterly contribution and wage reports. While the $9,000 wage base seems low, the potential for high experience rates (up to 10.2% total) underscores the importance for employers to actively manage unemployment claims and maintain accurate records to control SUTA costs.

Source: ODJFS - Contribution Rates

Decoding Your Ohio Pay Stub: From Gross to Net Pay (2025)

Understanding the various components listed on an Ohio pay stub helps employees verify their pay and comprehend where their money is going. Here’s a breakdown of common elements:

Gross Pay: Your Starting Point

This is the total amount earned before any deductions are taken out. It includes regular salary or hourly wages, plus any overtime, bonuses, commissions, or other forms of compensation earned during the pay period.

Pre-Tax Deductions: Reducing Taxable Income

These are amounts subtracted from gross pay before most taxes are calculated. Taking pre-tax deductions lowers the amount of income subject to taxation (taxable wages), which can reduce overall tax liability. Common examples include:

• Premiums for employer-sponsored health insurance (medical, dental, vision).
• Contributions to traditional 401(k), 403(b), or similar tax-deferred retirement savings plans.
• Contributions to Health Savings Accounts (HSAs) or certain Flexible Spending Accounts (FSAs).

Taxable Wages: The Basis for Taxes

This is the amount remaining after pre-tax deductions are subtracted from gross pay (Gross Pay - Pre-Tax Deductions = Taxable Wages). This figure is generally used to calculate federal income tax, state income tax, and local/school district income taxes. Note that the taxable wage base for FICA taxes (Social Security and Medicare) might differ slightly depending on the specific types of pre-tax deductions (some plans reduce income subject to income tax but not FICA tax).

Withholdings: Federal, State, Local, and FICA Taxes

This section details the taxes withheld from the employee's pay based on their taxable wages and withholding information (Form W-4, Form IT 4). Common withholdings on an Ohio pay stub include:

• Federal Income Tax (FITW): Based on W-4 information and federal tax tables/methods.
• Social Security Tax: 6.2% of FICA taxable wages, up to the annual limit of $176,100 for 2025.
• Medicare Tax: 1.45% of all FICA taxable wages.
• Additional Medicare Tax: An extra 0.9% withheld on wages exceeding $200,000 in the calendar year (employee only).
• Ohio State Income Tax (SIT): Based on IT 4 information and Ohio's 2025 tax brackets.
• Ohio School District Income Tax (SDIT): Varies based on the employee's resident school district rate and tax base. Often identified by a 4-digit code.
• Local/Municipal Income Tax: If applicable based on the employee's work location or residence (e.g., City Tax, RITA Tax).

Post-Tax Deductions: Final Adjustments

These amounts are subtracted from pay after all taxes have been calculated. They do not reduce taxable income but do reduce the final take-home pay. Examples include:

• Contributions to Roth 401(k) or Roth IRA plans (taxes paid now, qualified distributions tax-free later).
• Union dues.
• Wage garnishments (e.g., for child support or creditors).
• Repayments of loans from a 401(k) plan.
• Charitable contributions made via payroll deduction.

The distinction between pre-tax and post-tax deductions is significant. Pre-tax deductions offer an immediate tax advantage by lowering current taxable income, while post-tax deductions (like Roth contributions) may offer tax benefits in the future. Understanding this difference helps employees make informed choices about participating in various benefit programs offered by their employer.

Net Pay: Your Take-Home Amount

Also known as take-home pay, this is the final amount of money the employee receives after all taxes and deductions (both pre-tax and post-tax) have been subtracted from gross pay (Gross Pay - Pre-Tax Deductions - Taxes - Post-Tax Deductions = Net Pay). This is typically the amount deposited into the employee's bank account or printed on their physical paycheck.

Authoritative Resources for Ohio Payroll Taxes

For the most accurate and up-to-date information regarding Ohio and federal payroll taxes, consult the official sources directly. Here are links to key resources:

• Ohio Department of Taxation (General): https://tax.ohio.gov
• Ohio Income Tax Rates: https://tax.ohio.gov/individual/file-now/annual-tax-rates
• Ohio Tax Forms (including IT 1040, IT 4, SD 100): https://tax.ohio.gov/forms
• Ohio School District Income Tax Information: https://tax.ohio.gov/schooldistrict
• The Finder (Ohio School District Lookup): https://thefinder.tax.ohio.gov/...
• Ohio Department of Job and Family Services (ODJFS) - Employer Unemployment Info: https://jfs.ohio.gov/.../for-employers
• Ohio SUTA Contribution Rates: https://jfs.ohio.gov/.../contribution-rates
• Ohio SUTA Taxable Wage Base Information: https://jfs.ohio.gov/.../taxable-wage-base
• Internal Revenue Service (IRS): https://www.irs.gov
• IRS Form W-4 (Employee Withholding): Search "Form W-4" on https://www.irs.gov
• IRS Publication 15 (Circular E), Employer's Tax Guide: https://www.irs.gov/publications/p15
• IRS Publication 15-T, Federal Income Tax Withholding Methods: https://www.irs.gov/publications/p15t
• Social Security Administration (SSA): https://www.ssa.gov
• SSA Contribution and Benefit Base (Wage Limit): https://www.ssa.gov/oact/cola/cbb.html