Ohio Governor Mike DeWine signed House Bill 197 on March 27, 2020 as the state’s response to the current COVID-19 pandemic. The provisions of the bill include a number of tax-related measures, including suspending the 20-day rule during the COVID-19 pandemic. Under the normal rules, effective January 1, 2016, local taxes are withheld based on an employee’s “principal place of work” (as defined in Ohio Revised Code Ann. Sec. 718) for the first 20 days an employee works in another Ohio municipality (“non-principal place of work municipality”). Withholding is required for the “non-principal place of work municipality” beginning on the 21st day. Exceptions to the new 20-day rule exist for certain construction and other long-term worksite locations.
However, pursuant to House Bill 197, employers should continue to withhold state and local income taxes based on the employee’s principal place of work city, regardless of working from their residence during the pandemic. Employers will not be considered to have income tax nexus during the COVID-19 pandemic while impacted employees work from their homes.
So how does this impact employees working remotely and does it potentially offer a refund opportunity?
Under HB 197 employers continues to withhold state and local taxes based on the employee’s principal place of work city. However, will wages earned while working in a township (which does no impose a local income tax) or a city that does not offer full credit for wages earned in your work city be refundable? Currently there is no guidance that addresses this question. However, it is prudent for any employees working remotely to keep track of days worked at home, so if there is a refund opportunity, they have the documentation to take advantage of it.
Meaden & Moore will continue to monitor further developments in this area and provide additional updates as they become available. In the meantime, if you have any questions please feel free to contact us.