House Bill 197 & Taxing Remote Workers: What You Need to Know
In what seems to be an everlasting battle, the effects of the pandemic are still being felt nationwide. It has required businesses to adapt and change what was once the norm.
Allowing employees to work from home has been a major change made by many employers. This has raised concerns for Ohio municipalities. Without change, many large municipalities would have lost substantial income if employers had not been required to continue withholding on employees no longer working in the office.
Ohio House Bill 197
In March, House Bill 197 changed the withholding requirements to alleviate municipal concerns. However, the bill is not without its detractors and is being challenged in court. Here’s a brief summary of what we think our clients should know about this pandemic related tax change.
Prior to March, employers were required to withhold municipal income tax from an employee’s paycheck and must relinquish the withholding to the municipality where the employee’s principal place of work is located. With many employee’s principal place of work now being their personal residence, it raises the question should employers still be required to withhold local income taxes from employees who are now working from home? Section 29 of House Bill 197 provides the answer to the question.
House Bill 197, which became law on March 27, is legislation that contains emergency clauses directly in response to the pandemic. More specifically, Section 29 requires employers to continue to withhold municipal income taxes as if the employees were still working in the office. This bill applies for all wages earned from March 27th to 30 days after the emergency period ends.
The Buckeye Institute along with several others have questioned the constitutionality of House Bill 197 and have since filed a lawsuit against the state of Ohio. As of now the lawsuit is still pending and Section 29 is still effective. While the outcome of the lawsuit may be uncertain, it is without a doubt that the impact of not staying informed creates exposure to potential financial loss for the employer and/or employee.