Frequently Asked Questions

The Ohio Department of Taxation has compiled a list of frequently asked questions covering many different categories.

To view the questions, click on the "Select Category" bar and then click on the category you are interested in.  A list of questions will appear pertaining to that category. Then click on the question you are inquiring about and the answer will appear.

How do I determine if my compensation or guaranteed payment is business income?

Guaranteed payments or compensation paid by a pass-through entity to an investor who directly or indirectly holds at least a 20% interest in the entity are reclassified as business income under Ohio law. Thus, they are eligible for the Business Income Deduction.

The investor’s interest can be in either the profits or the capital of the entity. Additionally, as long as the investor owned at least 20% at any point during the tax year, any guaranteed payments or compensation paid by that entity to the individual are business income.

Additionally, if guaranteed payments or compensation are paid by a professional employer organization (PEO) on behalf of the entity to an investor who owns at least 20%, the amounts are reclassified as business income. For more information on PEOs, see this Ohio Tax Alert.

Indirect ownership does not include constructive ownership (i.e. ownership through a family relationship). For a detailed explanation of “indirect” ownership, see this Ohio Tax Alert.

See R.C. 5733.40(A)(7).

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