OH tax calculation for non-resident (2021 tax season)

[orangebowl2021]

Hello,

My wife and I are filing jointly. Her OH taxable income is < $25,000. Our federal income tax bracket is > $25,000. We are both non-residents of OH (residents of NY) and have been taxed on the <$25,000 income in 2021 for OH .

I read that the tax amount is $0 when Ohio Taxable Income is < $25,000 while a non-resident.

However, the TurboTax Premier online platform is showing that we owe taxes in OH.

Thanks!

[RaifH]

Ohio first calculates your tax based on your federal gross income and then multiplies that by the portion that you earned from Ohio sourced income. Since your federal income exceeded $25,000, you do have a tax due, assuming she was physically working in Ohio. 

[orangebowl2021]

Thank you for the response!

Is it important if she was physically in OH for the work? She was working remotely from NY for the work. 

[RaifH · Accepted solution]

Yes, it is important. Ohio only taxes income sourced in their state. Unlike New York, they consider your wife who telecommutes from out-of-state to be performing services in her home state, not Ohio, even if it was for an Ohio company.

This means that if your wife never worked in Ohio and telecommuted full-time, you should not allocate any of her income to Ohio and should receive a full refund of the amount that was withheld. Ohio still withholds municipal taxes for telecommuters which you may see in Box 14 or 18-20 of her W-2. You won't get those back. 

Although this sounds like good news, it really won't make much of a difference on your total taxes. If you had to pay in Ohio, New York would have given you a credit for how much you paid. Now that you don't have to pay Ohio, you won't get the credit in New York and will just owe New York more.