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What is the 20 day rule in Ohio?

Table of Content

    February 10, 2022

    As of 2020, COVID-19 prevented millions of people from leaving their homes and forced employers to create teleworking policies. Work-from-home policies encouraged virtual work environments as employers adapted their workflows to the new normal.

    Employers subject to traditional workplace in the New Year

    Beginning in the New Year, employers are subject to the traditional workplace under Section 718.011(A) of the Ohio Revised Code )(7) and the traditional 20-day rule. If an employee works from home or remotely from the employer’s office, the employer must withhold City Tax and remit it to the city where the employee actually performed the services (subject to the 20-day rule that still applies). As a result, it appears that in most cases employers must track the location where each employee provides services, withhold for each location, and remit the tax withheld to potentially numerous jurisdictions. The administrative burden for employers could be a nightmare.

    Additionally, and probably most importantly, after January 1, 2022, employers will lose the protection of ORC Section 757.40(B) contained in H.B. 110, which provided that if an employer withheld and remitted municipal income tax from wages earned between March 9, 2020 and December 31, 2021 to the city of the employee’s primary place of business (generally the employer’s office), the employer did not could be taxed, fine or interest by another municipality because it does not withhold that other municipality’s income tax. For example, this provision prevented Cleveland Heights from prosecuting an employer in the City of Cleveland who withheld taxes in the City of Cleveland on behalf of a Cleveland Heights resident worker who worked from home throughout 2021. In the absence of more legislation (highly unlikely given that the Ohio Legislature will not reconvene until mid-January 2022), this potential record-keeping nightmare will continue.

    Employer Safe Harbor

    Finally, the bill includes an employer safe harbor that prohibits local tax authorities from imposing penalties or interest on an employer who fails to do so , the municipality where the employee may do so, withhold money from the actual services rendered or improperly attribute an employee’s remuneration to the municipality for purposes of the employer’s net payroll tax liability.

    As part of this temporary change in local income tax deduction, an employer needs to carefully consider several points when updating the current work-from-home policies, including:

    Conclusion

    The intricacies of the Ohio municipal income tax and its withholding requirements will continue to concern individuals and businesses as widespread work-from-home policies continue. Ohio corporations should carefully review their withholding practices and consult with their tax advisors to ensure compliance with H.B. 110 and all Ohio legal requirements.

    Likewise, individuals who have been working remotely due to COVID-19 should assess whether they have overpaid their municipal income tax liability and may be entitled to an income tax refund.

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