New Year Brings New (Old) Rules for Ohio Municipal Income Tax Withholding by Employers
Starting Jan. 1, 2022, Ohio introduced “new” rules for municipal income tax withholding by employers for their employees who work remotely at least part of the time. These rules are a return to the pre-COVID rules that were in effect prior to March 9, 2020.
From March 9, 2020, until Dec. 31, 2021, employers had the option of treating any days on which an employee worked away from the “principal place of work” — usually the employer’s office — due to COVID as days worked at the principal place of work, only for withholding purposes. For 2021, at least, this change does not prevent an employee who wishes to request a refund for any tax withheld for the principal place of work on days when the employee worked elsewhere, even if this was due to COVID.
For 2020, there is pending litigation, eventually to be decided by the Ohio Supreme Court, regarding whether the employee is entitled to a refund for tax withheld at the principal place of work on days worked remotely due to COVID. To date, two appellate courts have held that for 2020, the employee is not entitled to request a refund for days worked away from the principal place of work due to COVID.
Effective Jan. 1, 2022, there are no longer special rules for either withholding or refund requests for remote employees, even if they are away from the principal place of work due to COVID. An employee may request a refund of any tax withheld for the principal place of work for any day worked remotely. Employers are generally required to withhold for the principal place of work unless the employee works in another jurisdiction for 21 or more days during the year.
If an employee works for the employer in a city or village other than the principal place of work for 21 days or more during the calendar year, the employer must begin to withhold income tax for the jurisdiction where that work is being performed — rather than for the principal place of work — starting with the 21st day. There is an exception to this for small employers — those with less than $500,000 in prior year annual revenues — who withhold only for the employer’s work location.
There also is a new statute regarding municipal income tax refund requests from employees who were working remotely in 2021 and later. This statute allows municipalities to ask the employer to certify both:
1) that the employer did not refund any municipal income tax withheld for the employee requesting the refund, and
2) the number of days that the employee worked at the principal place of work.
Many municipalities now require this certification before they will approve an employee’s refund request for days worked remotely. It is often difficult for employers to verify, and thus to certify, how many days a given employee worked remotely vs. “in the office” in this post-COVID era, so this change may make it more difficult for employees to get refunds from the principal place of work cities.
The state of Ohio, as an employer, is considering a change in its procedures under which employees would note on their time reports whether they were working remotely on a given day. This change has not yet been implemented, but other employers may also want to consider this procedure.
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