Ohio Stock Options Tax: 2.75% Flat Rate, No State AMT, and QSBS Conformity in 2026

Ohio became one of the most competitive income-tax states in the country for tech employees on January 1, 2026. House Bill 96, signed in June 2025, replaced Ohio's progressive bracket system with a single flat rate of 2.75% on all income above $26,050.¹ For a JPMorgan software engineer in Columbus exercising $500,000 of NQSOs, Ohio state income tax on that exercise is $13,750. A California counterpart pays $66,500 — a difference of $52,750 on a single exercise event. The comparison with New York City is starker still: $73,880 in combined state and city tax versus $26,250 in combined Ohio state and Columbus city tax.

Two less obvious advantages: Ohio has no state alternative minimum tax on ISO exercises,² and Ohio conforms to the federal §1202 QSBS exclusion.³ A Columbus startup founder who qualifies for the OBBBA-era $15M federal QSBS exclusion also excludes that gain from Ohio income tax — unlike California (which has never conformed to §1202) and Oregon (which decoupled from §1202 effective January 1, 2026 via SB 1507). On a $10M qualifying QSBS gain, Ohio conformity saves approximately $275,000 compared to a California counterpart ($1,330,000 vs $0).

The one meaningful complexity: Ohio has a layered municipal income tax system. Over 600 Ohio municipalities levy local income taxes, administered either by RITA (Regional Income Tax Agency) or CCA (Central Collection Agency) or directly by the city. Columbus charges 2.5% on earned income; Cleveland charges 2.5%; Cincinnati 1.8%; Toledo 2.25%. For NQSO exercises — where the spread appears as W-2 income — both state (2.75%) and city taxes stack. ISO exercises, which do not generate W-2 income at the federal level, typically do not trigger Ohio city income tax at exercise. This asymmetry between ISO and NQSO treatment at the municipal level is one of the more important Ohio-specific planning considerations.

The summary: Ohio is dramatically better than California for all option types, better than Pennsylvania for ISOs specifically (PA taxes ISO spreads at exercise; Ohio does not), and better than Illinois on rate. The Ohio city income tax layer creates a combined state + city rate of roughly 4.55%–5.25% in the major cities — still far below California (13.3%), New York City (14.776% combined), and Philadelphia (6.81% combined). For ISO holders specifically, the absence of an Ohio state AMT (and typically no city tax at exercise either) makes Ohio one of the cleanest states outside the zero-income-tax group.

Ohio Income Tax Rate 2026: 2.75% Flat

Effective January 1, 2026, Ohio imposes a two-tier income tax under H.B. 96: 0% on all income up to $26,050, and 2.75% on all income above that threshold — for all filing statuses.¹ The progressive bracket structure that Ohio had maintained for decades was eliminated. There are no additional surcharges, surtaxes, or high-earner phases in Ohio's state income tax for 2026, unlike Massachusetts (4% surtax above ~$1.08M), Connecticut (6.99%), or New Jersey (10.75% top bracket). The 2.75% rate applies regardless of income level: the same rate applies to a $200,000 NQSO exercise and a $5M NQSO exercise.

Ohio uses federal adjusted gross income (FAGI) as the starting point for Ohio individual income tax, with Ohio-specific additions and deductions applied under Ohio Revised Code Chapter 5747.⁵ This federal AGI starting point is the foundation of Ohio's ISO treatment.

Note: In 2026, Ohio eliminates the joint filing credit and personal/dependent exemptions for taxpayers with modified AGI above $500,000. High-earner households with MAGI over $500K lose these credits, but the 2.75% flat rate itself is unaffected.¹

ISO Treatment in Ohio: No Ordinary Income at Exercise

Ohio individual income tax starts from federal adjusted gross income (FAGI).⁵ When you exercise an ISO, the bargain element — the spread between exercise price and fair market value — does not appear in federal AGI. It is an AMT preference item added to federal alternative minimum taxable income on Form 6251 (IRC §56(b)(3)), but it is not ordinary income on your federal return, and it does not appear in federal AGI. Since Ohio starts from federal AGI without adding back ISO exercise spreads, Ohio imposes no income tax when you exercise ISOs.

This puts Ohio in the same favorable category as New York, Massachusetts, Illinois, Colorado, Virginia, and Georgia — states where ISO exercise triggers only federal AMT analysis, not state income tax. It contrasts sharply with California (FTB Publication 1004: ISO spread is ordinary income for CA purposes) and Pennsylvania (PA treats ISO spreads as ordinary income at exercise).

ISO qualifying disposition in Ohio

For a qualifying ISO disposition — shares held at least 2 years from grant date and at least 1 year from exercise date — the entire gain is long-term capital gain at the federal level. Ohio provides no preferential LTCG rate; qualifying-disposition gains are taxed at Ohio's flat 2.75%.¹ At 2.75%, Ohio's state tax on a qualifying disposition is modest: on a $1M qualifying-disposition gain, approximately $27,500 in Ohio state tax. That compares to approximately $133,000 in California (13.3%) and $109,000 in New York (10.9%). Ohio city income tax also applies to Ohio-source income from qualifying dispositions as capital gain; confirm your city's rate.

ISO disqualifying disposition in Ohio

A disqualifying disposition converts the bargain element to W-2 ordinary income. Ohio taxes that ordinary income at 2.75%. The practical consequence of qualifying vs. disqualifying for Ohio residents is determined primarily by federal tax considerations — the difference between 20% federal LTCG and 37% federal ordinary income rates. At Ohio's 2.75% flat rate, there is no state-level incentive to choose qualifying over disqualifying that isn't already present at the federal level. Both pathways are taxed at 2.75% in Ohio.

Note: A disqualifying disposition creates W-2 income, which is subject to Ohio city income taxes. A qualifying disposition produces capital gain income reported on Schedule D, not as W-2 wages — but Ohio cities may still tax this income depending on the city's taxable income definition. Most Ohio city income taxes under Chapter 718 are based on a broad "net profit" or "qualifying wages" concept; consult a local tax professional for your specific city.

NQSO Treatment in Ohio: State + City Rates Stack

Nonqualified stock option exercises are W-2 income. The spread between strike price and FMV at exercise is reported on your W-2 and subject to Ohio income tax at 2.75%, plus the income tax of any Ohio municipality where you work or live. Any gain above exercise-date FMV when you later sell the shares is capital gain — also taxed at 2.75% in Ohio.

Ohio City Income Taxes: The Important Added Layer

Ohio is unusual among states in the breadth and depth of its municipal income tax system. Over 600 Ohio municipalities levy local income taxes under Ohio Revised Code Chapter 718, administered by RITA, CCA, or the city's own collection office. Ohio residents typically owe municipal income tax to both their work city and their residence city, though most cities provide a credit (full or partial) for taxes paid to another Ohio municipality.⁴

Key 2026 Ohio city income tax rates for tech employers:

• Columbus (self-administered): 2.5% — applies to residents and employees working in Columbus. JPMorgan Chase, Nationwide Insurance, and many other major employers are headquartered here.
• Cleveland (RITA member): 2.5% — applies to work and residence income. Progressive Insurance and other major employers in the Cleveland area.
• Cincinnati (self-administered): 1.8% — applies to residents and people working in Cincinnati. Procter & Globe, Kroger, Fifth Third Bank, and many others are headquartered here.
• Toledo (RITA): 2.25%
• Akron (RITA): 2.5%
• Dayton (CCA): 2.25%

Intel's Fab 52 and Fab 62 are located in New Albany (Licking County), just outside Columbus. New Albany levies its own municipal income tax; employees working at the New Albany campus should verify the applicable New Albany rate rather than assuming the Columbus 2.5% rate applies to their work income.

City income taxes and ISO exercises: a key asymmetry

Ohio city income taxes under Chapter 718 are generally based on qualifying wages — income that appears on your federal W-2. ISO exercise spreads, which are AMT preference items and do not appear on your W-2 at exercise, are typically not subject to Ohio municipal income tax at the time of exercise. NQSO exercise spreads, which do appear as W-2 wages, are subject to both Ohio state income tax (2.75%) and applicable city income taxes (up to 2.5%). This asymmetry — ISOs largely escape municipal taxation at exercise while NQSOs do not — means the gap between ISO and NQSO after-tax economics in Ohio cities is larger than the state income tax rate alone would suggest. If you have a choice between ISO and NQSO grants at the same strike (or are evaluating a job offer with both), the municipal tax treatment favors ISOs in high-tax Ohio cities.

This is a more pronounced version of the same dynamic that exists at the state level in many states (ISO spread not in AGI → not subject to state tax at exercise), but Ohio's city income taxes add a real second layer that reinforces the ISO advantage. Confirm the specific treatment with the applicable city's tax administrator or a local Ohio tax professional, as city-level guidance can differ from the general Chapter 718 rule.

No Long-Term Capital Gains Preference in Ohio

Ohio does not offer a preferential state rate for long-term capital gains. All capital gains — short-term and long-term — are taxed at Ohio's flat 2.75% rate.¹ There is no holding-period incentive at the state level. The entire leverage in the qualifying-vs-disqualifying ISO decision for Ohio residents is on the federal side (20% federal LTCG vs. 37% federal ordinary income).

For comparison: Arizona taxes long-term capital gains at an effective 1.875% rate (2.5% flat rate × 75% subtraction under SB 1331); Washington state has a 7% capital gains excise tax on qualifying dispositions above $278K but no income tax. Ohio's 2.75% rate on long-term gains is low in absolute terms — substantially below California (13.3%), New York (10.9%), Minnesota (9.85%), and New Jersey (10.75%) — but lacks Arizona's additional LTCG preference and is slightly higher than the combined rate in zero-income-tax states (Texas, Florida, Nevada, Tennessee).

QSBS in Ohio: Full Federal Conformity

Ohio conforms to the federal §1202 qualified small business stock (QSBS) exclusion through its rolling adoption of the Internal Revenue Code.³ Because Ohio individual income tax starts from federal AGI, and §1202-excluded QSBS gain does not appear in federal gross income (and therefore not in federal AGI), Ohio imposes no state income tax on federally excluded QSBS gains.

Under the OBBBA-era §1202 rules (effective for eligible stock issued after July 4, 2025), the exclusion tiers are: 50% at 3 years, 75% at 4 years, 100% at 5+ years, with a $15M per-issuer cap and $75M gross asset test. Ohio's conformity extends to these new thresholds by operation of its rolling IRC adoption. Ohio startup founders and early employees who structure early exercises with 83(b) elections can potentially eliminate both federal and Ohio state tax on up to $15M of qualifying gain per issuer.

QSBS planning in Ohio: 83(b) + early-exercise stack

The §1202 five-year holding period starts from stock acquisition date, not grant date. ISO or NQSO holders with an early-exercise right at a C-corp startup can start the QSBS clock on day one by exercising at grant and filing an 83(b) election within 30 days. Ohio's conformity to §1202 means both federal and Ohio state tax can be eliminated on up to $15M of qualifying gain — provided the company meets the §1202 requirements (domestic C-corp, active business in qualifying trade, $75M gross asset limit at issuance under OBBBA rules). The 30-day 83(b) window is an absolute deadline with no extensions; don't miss it.

Nonresident Sourcing: Ohio Allocates Option Income to Ohio Workdays

Ohio taxes nonresidents on Ohio-source income, with stock option compensation allocated using a workday fraction based on the proportion of services performed in Ohio during the period from grant to exercise (Ohio IT 2023 Instructions).⁷ The standard formula:

Ohio-source income = exercise spread × (Ohio workdays during grant-to-exercise period ÷ total workdays during grant-to-exercise period)

If you received grants while working in Ohio and have since relocated, Ohio will assert a claim on the Ohio-source fraction of your exercise spread when you exercise — even if you are no longer an Ohio resident. File a nonresident Ohio return (Form IT 1040) and pay Ohio tax at 2.75% on the Ohio-source fraction.

California-to-Ohio relocator trap: CA still follows you

If you relocated from California to Ohio and still hold grants that were partially or fully earned while working in California, the California FTB will assert California source income on those grants when you exercise — regardless of where you live today. California uses the same grant-to-exercise workday fraction as Ohio, and California's 13.3% rate makes this sourcing claim far more expensive than Ohio's. The practical risk: an Ohio resident exercising California-era grants may owe Ohio tax (2.75% on Ohio-source fraction) and California nonresident tax (up to 13.3% on the CA-source fraction). These claims are based on different workday fractions and do not double-count, but they do stack. Model both states before exercising grants from your California employment period.

Six Planning Strategies for Ohio Stock Option Holders

1. Use Ohio's low flat rate for NQSO exercise bracket management

At 2.75%, Ohio's marginal rate on NQSO exercise income is low enough that state-level bracket management adds little value — the primary optimization is at the federal level (37% vs. 35% brackets, NIIT threshold, AMT safe zone). Unlike California or New York, where high state rates create strong incentives to spread exercises across calendar years, Ohio doesn't add meaningful additional motivation to delay. Focus NQSO exercise timing on: (a) federal bracket optimization, (b) Social Security wage base clearance ($184,500 in 2026⁶ — exercising after your salary clears the base saves 6.2% FICA on the option spread), and (c) underlying stock price expectations. The Ohio tax analysis is almost never the binding constraint.

2. Model the city income tax credit carefully if you live and work in different Ohio municipalities

Ohio's Chapter 718 allows, but does not require, cities to provide a credit against residence tax for income taxes paid to a work city. Columbus provides a 100% resident credit for taxes paid to other municipalities (up to the Columbus 2.5% rate). Cleveland, Cincinnati, and most RITA members also provide this credit — but the credit rate, cap, and mechanics vary by municipality. If you live in a suburb and work in Columbus, you may owe the suburban city's rate minus a credit for Columbus tax paid. For large NQSO exercises, even a partial credit gap can create a meaningful double-tax. Verify the credit rules for your specific work and residence municipalities before your exercise year.

3. Leverage Ohio's ISO advantage for pre-IPO exercise planning

ISO exercises in Ohio avoid both Ohio state income tax and (typically) Ohio city income tax at exercise — since no W-2 income is generated. The only exercise-year exposure for ISO exercises in Ohio is federal AMT. This makes Ohio one of the most favorable income-tax states for pre-IPO ISO exercise planning. Use the ISO AMT Calculator to find your federal AMT safe zone (the maximum spread you can exercise without triggering AMT), then consider whether a multi-year exercise ladder makes sense. Ohio residents do not face the compounding federal + state AMT pressure that California residents face (CA AMT is 7% on top of federal AMT), which creates more room to exercise strategically each year without exceeding your AMT threshold.

4. Start the QSBS clock with an 83(b) election if you have early-exercise rights

Ohio's conformity to §1202 means early-exercise + 83(b) election is one of the highest-return planning moves available to Ohio startup founders and early employees. Exercise at grant (when FMV equals or is close to strike price), file the 83(b) election within 30 days, and start the §1202 five-year clock. If the company qualifies under §1202, Ohio state tax on up to $15M of gain can be eliminated entirely — in addition to eliminating federal tax. The upfront cost is the cash for the exercise and the FMV income tax on any spread at exercise (usually zero for early-stage grants with strike price near FMV). The 30-day window from exercise date to 83(b) filing is absolute; missing it forfeits this planning strategy entirely.

5. If you relocated out of Ohio within the last four years, calculate your sourcing ratio before exercising

At 2.75%, the Ohio nonresident sourcing claim on a $1M NQSO exercise with a 60% Ohio fraction is approximately $16,500. That's modest compared to California or New York sourcing claims — but if you relocated to a zero-income-tax state like Texas, Florida, or Nevada, there is no credit available to offset the Ohio nonresident bill. Compute your current sourcing ratio and compare: how much would the Ohio-source income decline by waiting 6–12 months? At 2.75%, the incremental saving from waiting is usually modest in dollars — but the calculation is quick and worth doing before pulling the trigger on a large exercise.

6. For post-IPO diversification at Ohio companies, use HIFO lot selection driven by federal considerations

Ohio's flat 2.75% rate means lot selection decisions for post-IPO diversification are almost entirely driven by federal tax considerations. Choose your highest-basis lots for current-year sales to maximize federal capital loss offset or minimize federal gain — Ohio's rate is the same regardless of lot selection. Unlike California, where the 13.3% state rate creates meaningful state-versus-federal optimization tension, Ohio's flat rate is low enough to be treated as a constant in the lot-selection analysis. Use a HIFO (highest-in, first-out) or specific-identification strategy for federal efficiency; the Ohio tax is 2.75% of whatever gain you realize, regardless of which lot you choose. Coordinate with a fee-only advisor to model multi-year sale schedules around the federal 0%/15%/20% LTCG brackets and the 3.8% NIIT threshold.

1. Ohio 2026 flat income tax rate: 0% up to $26,050; 2.75% on all income above $26,050. House Bill 96 (enacted June 2025, effective January 1, 2026) eliminated Ohio's progressive bracket system and introduced the flat 2.75% rate. No preferential rate for long-term capital gains. Sources: Dark Horse CPA: Ohio Moves to a Flat Tax in 2026; Tax Foundation: 2026 State Tax Changes Taking Effect January 1st; Ohio Revised Code §5747.02 — Individual Income Tax Rates (Ohio Laws).
2. Ohio has no state alternative minimum tax. Ohio does not maintain a separate state AMT parallel to the federal AMT. ISO holders in Ohio face only federal AMT (Form 6251) when exercising ISOs — there is no Ohio-level AMT calculation. This contrasts with Colorado (3.47% state AMT, Form DR 0104AMT) and California (7% state AMT on ISO exercise spreads). Sources: Ohio Department of Taxation; ORC Chapter 5747 — Ohio Individual Income Tax (Ohio Laws).
3. Ohio §1202 QSBS conformity. Ohio's individual income tax starts from federal adjusted gross income (ORC §5747.01). §1202-excluded QSBS gain is not in federal gross income and therefore not in federal AGI; Ohio imposes no state income tax on federally excluded QSBS gains. Ohio adopts the Internal Revenue Code on a rolling basis, meaning OBBBA-era §1202 enhancements (tiered 50/75/100% exclusion at 3/4/5 years; $15M per-issuer cap; $75M gross asset test for post-July 4, 2025 issuances) are incorporated by operation of Ohio's IRC conformity. Sources: QSBS Expert: Ohio Qualified Small Business Stock; ORC §5747.01 — Definitions (Ohio Laws).
4. Ohio city income tax rates. Ohio has over 600 municipalities that levy income taxes under ORC Chapter 718, administered by RITA, CCA, or self-administered by the city. Columbus (2.5%), Cleveland (2.5%), Cincinnati (1.8%), Toledo (2.25%), Akron (2.5%), Dayton (2.25%). City income taxes generally apply to W-2 qualifying wages, including NQSO exercise spreads. Sources: RITA Ohio — Tax Rates Table (RITA member municipalities); Columbus Division of Taxation — Income Tax Division (City of Columbus); Ohio City Income Tax Guide 2026.
5. Ohio individual income tax starting point: federal AGI with Ohio modifications. Ohio's individual income tax is based on federal adjusted gross income with Ohio-specific additions and deductions under ORC §5747.01. ISO exercise spreads — AMT preference items under IRC §56(b)(3), not in federal AGI — are not subject to Ohio income tax at exercise. Source: ORC §5747.01 — Definitions (Ohio Laws).
6. 2026 Social Security wage base: $184,500. NQSO exercise spreads are W-2 wages subject to the 6.2% employee Social Security tax up to this limit. Source: SSA.gov — Contribution and Benefit Base 2026.
7. Ohio nonresident stock option sourcing. Ohio taxes nonresidents on Ohio-source income; stock option compensation is sourced to Ohio using a workday fraction (Ohio workdays during grant-to-exercise period ÷ total workdays during same period). Nonresidents with Ohio-source income file Form IT 1040 with nonresident allocation (Ohio IT 2023 Instructions). Source: Ohio IT 1040 Instructions — Ohio Department of Taxation; Financial Planning Association: State Income Taxation of Nonresident Equity-Based Compensation (Oct 2022).

Values verified June 2026. Ohio income tax rates reflect H.B. 96 (enacted June 2025, effective January 1, 2026). City income tax rates reflect RITA, CCA, and city-published 2026 rates. QSBS conformity is based on Ohio's rolling IRC adoption under ORC §5747.01; Ohio has not published specific guidance on OBBBA §1202 amendments as of this writing. Confirm current-year values and city-specific rules with an Ohio-licensed tax advisor before making irreversible decisions.