The COVID-19 pandemic brought seemingly endless challenges for virtually everyone – families, individuals, businesses, and non-profit organizations alike. Helping navigate these challenges has been the focus of multiple federal relief packages passed over the past 18 months – and other local government issues (including those involving municipalities) have largely been pushed aside.
Questions on Remote Employee Taxes
For Ohio municipalities, questions have been swirling for months around how companies with remote employees will be taxed post-pandemic. Under traditional rules, municipal taxes are collected in the principal place of business. More specifically, municipal taxes are normally collected once an employee has worked over 20 days in a location. However, due to the COVID-19 pandemic, the state suspended the 20-day requirement. As the situation evolves, and as it appears likely more employees will be working remotely on an indefinite or even permanent basis, confusion about future tax regulations has surfaced. The good news is the recently signed Ohio Budget Bill (OBB) provides the answer.
Key OBB Components
Temporary Rule Extension
The OBB confirms for the period between March 9, 2020, through December 31, 2021, Ohio employers are permitted to treat services rendered outside of the principal place of business as though it were provided there. As a result, employers can continue to withhold taxes based on the original place of work and do not need to make additional considerations based on the employee’s existing location. It is important to note that the change of location must be related to the pandemic, otherwise, the 20-day withholding rule will still apply.
Withholding Refund Opportunity
The OBB also includes a provision that allows an employee to request a refund in circumstances where a withholding occurred for a municipality in which a liability did not exist. When receiving such requests, a municipality is prohibited from asking for any documentation, except the following:
- Verification of the number of days the employee worked at the employer’s principal place of business.
- Confirmation the employer has not provided a refund of taxes directly to an employee.
Safe Harbor Program
To make the transition easier for Ohio businesses, a safe harbor program was included, which prohibits municipalities from assessing penalties and interest for failure to withhold taxes in places where services were provided.
Critical Clarity – for Now
The remote workplace has increased in popularity amongst employees but has certainly created a host of new issues and challenges for employers. The program extension provides important clarification to follow in the second half of 2021.
If you have questions about taxation, nexus, withholding rules, compliance, or any other state and local tax or tax planning issues, our state and local tax professionals can help you navigate a successful path forward. Contact us now for a free consultation – we’re here to help.