Explain Ohio joint filing credit?

[Hal_Al · Accepted solution]

 Here's the problem in Ohio: Unlike the federal tax system, Ohio does not have separate tax rates based on your filing status. The 2nd spouse's income is added to the first spouse's income and that total income is pushed into a higher tax bracket. So, a single person and a married couple making the same income are each taxed at the same marginal rate. Ohio tries to compensate for this with a Joint Filing Credit, but it is limited and doesn't always make up for the higher rates. The Joint Filing Credit also requires qualifying income, so if the spouse does not work (or have retirement income other than social security), the couple does not usually even get the credit. 

Each Spouse must have at least $500 of qualifying income to get the credit. The income must be "qualifying" income. Typically only earned income (e.g. wages) and retirement income are qualifying income. Interest, dividends, rental income do not count.

Then, any Ohio schedule A deductions (like excess  medical expenses) or Federal adjustments (the most common being an IRA deduction) must be subtracted from the qualifying income. If either spouse has less than $500 net, you will not qualify for the Joint filing credit. Take a look at the joint filing credit allocation worksheet (abbreviated Joint Alloc Wks on  list of forms) that TT does, it should show these adjustments and the net qualifying income for each spouse.

[blakelkg]

Is there a formula to allocate deductions (by spouse).  What is the allocation based on? Income?  Some formula?  Data entry?

[blakelkg]

Are IRA Distributions considered part of the Qualifying Income?

[Hal_Al]

Yes, the taxable portion of IRA distributions is qualifying income.  Non taxable distributions from a Roth IRA are not qualifying income.

There is no hard and fast rule (or formula) on how you allocate the amounts between the spouses.
• ·             If it's clear who paid it, e.g. it was deducted from one spouse's pay, allocate it all to him.
• ·             You can split it 50-50, if the payments come from a joint bank account
• ·             I proportion mine by percentage of income, e.g. if the wife earns 40% of the income, allocate 40% of the adjustments to her.
In the case of student loan interest it could all be allocated to the spouse who's name the loan is in. On the other hand, if the interest was paid with joint funds, a 50-50 allocation could also be correct.

[cpaeacsep]

I have in excess of $100,000 of earned income & my wife has $3,943 of IRA a/c RMDs & we are not getting the Joint filing Credit?

[dnotestone]

IRA distributions from a taxable traditional plan that are included in Ohio taxable income should be qualifying income for the purpose of the joint filing credit. As a tax planning opportunity, if one spouse has qualifying income (e.g., wages, retirement income) but the other spouse does not, but he or she has a traditional IRA and is 59 1/2 years old or older, then that spouse could withdrawal at least $500 each year to take advantage of the joint filing credit.  

[dnotestone]

That is withdrawal at least $500 in excess of any Schedule A deductions.