As of March, Ohio became more favorable to those who spend most of the year here but winter elsewhere. People, such as retirees, who have ties to Ohio but wish to be residents of Florida, can now extend their stay in Ohio without concern for the tax implications.
The so-called “snowbird rules” that determine whether or not an individual is an Ohio resident for income tax reporting purposes have been altered to allow people to spend an extra 30 days in the state without being considered a resident.
“From a financial planning perspective, this is a benefit to those who are looking at ways to maximize the wealth available for themselves and their heirs,” says John Schuman, Chief Planning Officer at Budros, Ruhlin & Roe, Inc. “Now people who are here for fewer than 212 contact periods don’t need to report their income to the state. They’re essentially getting to stay seven months in the state instead of six months.”
Smart Business spoke with Schuman about the implications of Ohio’s revised snowbird rule.
How can residency affect a person’s financial planning decisions?
What most people don’t account for on their balance sheet is the tax impact of their residency. Where one resides affects the net cash that can be generated from a pension, IRA or portfolio assets. When that’s measured over a long period of time, it affects lifestyle and the amount of wealth that can be left to heirs. Residency, then, becomes a big part of the financial planning discussion.
Changing the state in which you live is often done purely as a tax play. Most people, however, found it hard to be out of Ohio more than six months, which was the condition under the old rule. The weather makes it easy to reside elsewhere from January through March, but people want to come back for holidays, summer and fall. That means difficult choices had to be made when deciding which months to not be in the state.
The law change allows snowbirds to pick up an extra month in Ohio without negative tax implications.
What is a contact period and what impact does it have on residency decisions?
The new presumption of residency is based on being in Ohio for 212 contact periods rather than 182 contact periods. More than 212 contact periods and you’re considered a resident, and you’ll pay tax to Ohio on all of your income.
A contact period can be interpreted as staying in the state overnight — it means you’re in Ohio part of any two consecutive days. For instance, if you’re in Ohio at 11:59 p.m. and stay through 12:01 a.m. that’s considered one contact period, even if you’re only here for those three minutes. That doesn’t count as two days, only one contact period.
Just how many contact periods a snowbird has in the state is a source of anxiety for many. That’s because anyone who is called by the state to substantiate his or her residency bears the burden of proof — it’s not the state’s responsibility to show the person should, in fact, be considered a resident. It’s the person’s responsibility to show they aren’t.
Filing Ohio Tax Form IT DA-NM creates an irrebuttable presumption of nonresidency with the state. It’s a good idea for those who have a home in Ohio to file this form, even if they don’t have a tax filing requirement here.
Based on the rule changes, what financial planning advice would you offer Ohio residents who winter outside the state?
This opportunity that the state is providing is making Ohio friendlier to the retiree community. Snowbirds should give this new residency provision a close look because it can be a significant benefit — the ability to keep an extra 5 percent of a pension or Social Security, or the income generated from an investment portfolio.
Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.
