As the pandemic drags on, employees continue to split their time between the office and home — leaving many questions for employers and employees related to city income tax withholding. Below takes a look at the reality Ohio municipalities have faced over the past two years and where those in the state stand today.
Ohio Municipal Withholding in 2020 and 2021
Employers
We provided several updates around the employer withholding rules in 2020 and 2021, beginning with Ohio issuing an emergency order on March 9, 2020, and passing HB 197. HB 197 attempted to simplify employer withholding during the anticipated temporary emergency period while employees were displaced from their principal place of work. Employers were required to continue withholding as if employees were reporting to their pre-pandemic principal place of work.
Then on June 18, 2021, Governor DeWine ceased the emergency order and employers had 30 days to implement pre-COVID 19 withholding procedures. However, legislators stepped in to assist employers still struggling to run their businesses efficiently in a COVID environment. They passed HB 110 which allows, but does not require, employers to continue withholding on employee wages to the pre-pandemic principal place of work through December 31, 2021.
Employees
While many businesses benefited from the simplified COVID withholding provisions, some employees were negatively impacted when transitioning their work duties to lower or no tax municipalities. HB 110 explicitly authorizes displaced employees to file refund claims with their principal place of work city for days they did not work within the city during 2021 only.
Legislators considered extending the refund opportunity back to 2020 within HB 110, but ultimately decided to leave the 2020 refund opportunity up to the courts. Several taxpayers have filed suit against Cleveland and Columbus, among other cities, to secure 2020 tax refunds for days that were not worked at their principal place of work due to Ohio’s stay-at-home order. While we have seen several cases settle or rulings against a taxpayer around employer withholding, none of these closed cases have addressed an employee’s ability to request a 2020 refund.
As we wait for further 2020 guidance, employees may continue to file 2020 refund claims within three years after the tax was due or paid, whichever is later. Most cities have stated they will not issue a 2020 refund to temporary remote workers until the courts issue a decision.
