Changes to Ohio Municipal Income Tax Withholding Rules

As the 2021 calendar year comes to a close, there are many tax planning items to consider.  A local tax item that we want to make sure you remember to re-visit is the change in the Ohio municipal income tax withholding rule that is set to take effect on January 1, 2022.   This is especially important to remember since work from home and remote working arrangements have taken hold during the COVID-19 pandemic.

There has been a temporary rule in effect (reinstated by H.B. 110) guiding municipal income tax withholding for employees working at locations outside of their principal place of work due to the COVID-19 pandemic.  The rule allowed wages earned by those employees to be deemed as earned at their principal place of work rather than at their temporary work locations.  In effect, this potentially excused employers from withholding taxes in the temporary locations and from becoming subject to tax in those municipalities.  The temporary rule is set to expire on December 31, 2021.

Therefore, effective January 1, 2022, the municipal income tax treatment for employees working outside of their principal places of work will once again be directed by what has historically been referred to as the “20-day rule”. 

Under Ohio Revised Code Section 718.011, a nonresident employee can work in an Ohio municipality outside of his/her principal place of work for up to 20 days per year before becoming subject to income tax in that municipality.  Once the 20 day limit is exceeded, the employee becomes subject to tax in the municipality and the employer becomes subject to the withholding requirements of that municipality.* 

Consequently, it will be important to keep track of where employees are physically located when performing work and to monitor and adjust withholding requirements accordingly.  The above provides a general overview.  Please feel free to contact our office for more detailed information regarding how the changes impact you specifically. 

_____________________________________________________________________________________

* There are exceptions for qualified small employers.  Withholding requirements vary for services that can reasonably be expected to last more than 20 days and for employees performing services as professional athletes, entertainers or public figures.