I made a non-qualified 529 withdrawal in 2018. I included the earnings portion as income on my federal taxes and added the 10% penalty. I also included the contributions portion on my Ohio state tax return as an addition to income. However, I am confused by the Ohio state tax treatment of earnings. Ohio 1040 Schedule A line 31 seems to indicate that I can deduct the 529 earnings from federal adjusted gross income on my state return, implying that these earnings are not subject to Ohio state tax. I've also found some online case studies where state tax is not applied on non-qualified 529 withdrawal earnings. However, this approach seems like it would be a loophole on state tax treatment since state tax would be applied on earnings on an otherwise identical taxable account. Can anyone please provide a definitive answer? Thanks!
