Municipal Employer Withholding Tax Update

Since the start of the COVID-19 pandemic, many employees have been working remotely instead of at their pre-COVID-19 principal place of work municipalities.

Why did this cause an issue for so many employers? Section 718.011 of the Ohio Revised Code specifies that tax must be withheld for an employee’s principal place of work for the first 20 days the employee works in another municipality. Withholding is required for that non-principal place of work municipality beginning on the 21st day. (This is often referred to as the “20-day rule.”) “Principal place of work” refers to the fixed location to which an employee is required to report for employment duties on a regular and ordinary basis. Additionally, there is a modified rule for small employers.

History of the Withholding Exception

To provide some relief for employers from having to administer the complexities of the 20-day rule for all employees who were working remotely, Ohio House Bill 197 was signed into law by Gov. Mike DeWine in March 2020. Ohio House Bill 197 provided a withholding exception to allow employers to continue to withhold tax for the pre-COVID-19 principal place of work municipality while their employees were working remotely. This exception from the 20-day rule would continue for 30 days after Ohio’s emergency order was lifted by Gov. DeWine.

On June 18, 2021, Gov. DeWine rescinded Ohio’s emergency orders, which had been set to expire on July 18, 2021. With the emergency orders lifted and employers once again subject to the 20-day rule, Ohio House Bill 110 was signed into law by Gov. DeWine on July 1, 2021, and it extended the withholding exception under Ohio House Bill 197 until December 31, 2021. Ohio House Bill 110 does not require employers to continue to withhold under the withholding exception of Ohio House Bill 197. Instead, it provides a compliance transition period for employers to go from the withholding exception under Ohio House Bill 197 back to the 20-day rule under Section 718.011 of the Ohio Revised Code effective January 1, 2022.

Changing Requirements

With January 1, 2022, just around the corner, all employers need to review the work locations of their employees who are now working remotely in order to determine if additional city withholding registrations and/or payroll procedure modifications are required.

Lastly, Ohio House Bill 110 provides an opportunity for employees to apply for a refund of 2021 taxes withheld from a municipality in which the employee physically did not work. However, Ohio House Bill 110 did not resolve the pending litigation regarding applying for a refund of 2020 taxes withheld from a municipality in which the employee physically did not work.

Contact us to discuss the changes to withholding and how they may affect your business’s remote employees.

@2021