After multiple legislative attempts, we now have some clarity on how and when municipal withholding rules will change now that the pandemic is fading. First, a brief background.
Ohio employers were required to determine an employee’s principal place of work (“PPW”) based upon a cascading test (see original article, here) and to change employee withholding to match that PPW whenever the test indicated the need to do so. That all changed early in the pandemic when Governor Mike DeWine declared a state of emergency, the 20-day rule was essentially suspended, and wherever an employee’s PPW was on 3/9/2020 became their PPW for the foreseeable future.
This situation resulted in many unknowns for employers, employees, municipalities, and tax professionals including:
> How to determine the PPW for employees that are working from home due to a change in business model of the employer rather than due to the state of emergency
> How to determine the PPW for an employee that moved during the pandemic
> Could employees file a refund claim with the municipality of their PPW since they were not working there and, if so, how should they report that request on the return filed with their resident municipality?
> Did the municipalities have to give refunds to employees that requested them?
> How should the apportionment of wages be done for Ohio Net Profits Tax?
This much is now clear:
1) Employers are permitted to withhold the employee’s 3/9/2020 PPW until 12/31/2021, but they are not required to.
2) Employers should calculate their Ohio net profit tax using the same wages reported for withholding purposes.
3) Municipalities cannot enforce the normal 20-day rule withholding requirements through 12/31/2021.
4) Employee refund claims for 2021 municipal tax withheld for the PPW are allowed.
5) Employers cannot be required by municipalities to provide documentation to support a municipal refund request filed by an employee other than:
a. a verification of how many days the employee worked at their PPW, and
b. that the employer has not refunded any withholding tax to the employee
6) The municipality of residence must give their usual credit to employees for taxes paid to the PPW municipality for 2021. Employees will still owe tax to their resident municipality, as they did in the past, when the resident municipality has a higher tax rate or when it does not grant full credit for tax paid to another municipality.
7) The municipality of residence may not force a resident to request a refund from the PPW municipality for 2021, even though a refund is allowed.
As always, some client determinations specific to certain facts will need to be made. Please contact Robin Teeters at firstname.lastname@example.org or 800.887.0437 with any questions.