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A newly introduced Ohio bill (H.B. 246) would allow college graduates to claim an income tax deduction for qualified higher education expenses and allow an employer of recent college graduates to deduct the employer's costs of employing the graduate from the employer's gross receipts subject to the commercial activities tax. This may be a win on multiple grounds as employers seek new talent in an improving but uncertain economy, recent graduates struggle with unemployment and underemployment and unprecedented debt loads, and there is evidence that Ohio may just have begun to buck its “brain drain” trend. This bill may also be the push some businesses need to ramp up their hiring, as employee costs would be reduced in the first years of the recent college graduate’s service.

Under H.B. 246, employers would be able to deduct an amount equal to a percentage of the eligible costs of employing a qualifying recent graduate from their taxable gross receipts. The deduction would be halved each year, starting at a 100 percent rate, for five years of the employee’s tenure. The deduction is illustrated in the chart below:


Employment Year

Percent of Employee Costs Deductible 











The categories of deductible “eligible costs” are broadly construed under the bill and include the employee’s wages, health care and workers' compensation premiums. Also, recent graduates would include those who have received a degree within the last two years, not just those directly entering the workforce after graduation.

As for the graduates themselves, individuals who graduate with a bachelor’s degree or higher would be eligible to deduct one-tenth of his or her qualified education costs from their federal adjusted gross income (AGI) so long as such costs have not otherwise already been deducted or excluded from AGI. The recent graduate would be able to deduct one-tenth of such costs for the following nine years. The bill would also incentivize those who graduate with an associates or technical degree in similar fashion, except these graduates would be able to deduct one-fifth in the first year and a fifth in each of the following four years. However, if you are a recent graduate, there is no reason to rejoice. As currently drafted, the bill would only allow graduates who graduated on or after the effective date of the bill to be able to take this deduction.

Critics of this bill believe it incentivizes further displacement of unemployed Ohio workers by giving preference to recent graduates over other classes of unemployed workers. These critics believe there is no real economic reason for giving a preference to recent graduates. Proponents claim this bill will help businesses add additional employees, retain and attract recent graduates and help Ohio’s economy modernize through an educated workforce. Regardless of which side of the fence you are on, it certainly will spark some interesting debates about Ohio’s economy and the direction Ohio’s legislature aims to take as it maneuvers to spur recovery from the recent recession.

Click here to read the text of H.B. 246.