Jun 25

Governor Mike DeWine lifted Ohio’s state of emergency on June 18, 2021, which means that the temporary rule governing the municipal income taxation of employees who are working at a temporary worksite—including their home—due to the COVID-19 pandemic will expire in 30 days. The rule, which originally passed in March 2020 as part of House Bill 197, specifies that if an individual must work at a temporary worksite because of the COVID-19 pandemic, that employee is still considered to be working at his or her regular place of employment or principal place of work.

This means that, beginning in mid-July, the rule regarding withholding municipal income tax would revert to how it worked prior to the COVID-19 pandemic. Under those rules, a nonresident employee may work in a municipality for up to 20 days per year without the employer becoming subject to that municipality’s tax withholding requirements and the employee becoming subject to that municipality’s income tax.

However, the latest version of the Ohio General Assembly’s two-year budget bill includes a provision that would extend the temporary rule—allowing employers to continue withholding as if employees were working at their regular workplace—until December 31, 2021. The provision would also allow employees to request a refund of any taxes withheld under the temporary rule and give employers safe harbor for failing to withhold taxes to the municipality in which employees actually worked.

GCP members supported moving the sunset to the end of 2021 to help ensure predictability, but opposed the provision to allow retroactive refunds, which could create unnecessary burdens on the employers and political subdivisions that support northeast Ohio’s economy. A budget bill conference committee is currently meeting to determine what will be included in the final version of the budget bill, including how to address the municipal income tax issue.

The state budget bill has a 90-day effective date after the Governor signs it on June 30, meaning that without changes to the language, the temporary rule could lapse before the budget provision extending it becomes effective. The issue could also have a large impact on Northeast Ohio municipalities, including Cleveland, that rely on income taxes as a principal source of revenue.