How Much Will I Pay in Ohio State Taxes on a Retirement Withdrawal?

Unlike some states, Ohio taxes some of your retirement income. The state mandates this tax on all private income sources but provides meager exemptions to exclude a portion of that retirement income. You should understand what is and isn't taxable so you don't underpay your state tax liability.

Significance

Ohio taxes all of your private retirement income. This includes retirement income from all pensions from your employer, annuities from either your employer or private insurance arrangements, and any retirement account such as a 401k plan, IRA, 403b plan or any other private or employer-based retirement scheme. All residents of Ohio must pay this tax. Nonresidents aren't subject to Ohio's income tax.

Amount

The tax you pay is graduated and progressive, like the federal tax system. The more money you make, the more Ohio taxes you. For example, your retirement income is taxable at the 0.587 percent rate when you make up to $5,050, as of 2011. However, if you make between $5,050 and $10,100, Ohio assesses you $29.64 plus 1.174 percent for all amounts more than $5,050. The top tax rate is $9,171.63 plus 5.925 percent on all income that's more than $201,800.

Exemption

You receive a number of exemptions, called tax credits in Ohio. You receive a tax credit for $200 on all of your private retirement income. If you're 65 years or older, you receive an additional $50 credit. Social Security retirement benefits and railroad retirement benefits are deductible from your taxable income and you may exclude interest and dividend payments from U.S. treasury bills, notes and savings bonds.

Consideration

Although you can't avoid the Ohio state income tax, you might consider moving to another state that's tax free or exempts retirement income. Certain states, such as Florida, don't tax income. If moving isn't an option, you may lessen the tax you pay by converting nonretirement account-based annuities to guaranteed monthly payments. This returns a portion of your investment principal to you with each payment. Because part of your payment is principal and part of it is investment interest, only part of your payment is taxable. Consider investing nonretirement account funds into U.S. bonds or other tax-free municipal bonds issued by the state or local municipalities.

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