Ohio Employers Subject to New Municipal Tax Withholding Rules

Date December 20, 2021

The new year brings new municipal tax withholding requirements for Ohio employers. As of January 1, 2022, employers must withhold municipal income taxes based on where their employees work. Under the “general rule for municipal income tax withholding” employers must withhold taxes “for each portion of a day worked in any taxing municipality at which an employee performs services for the employer,” including for employees who work in different municipalities on the same day.

While the rule applies for all municipalities with income taxes, there are some exceptions:

  • The 20-Day Occasional Entrant Exception allows a qualifying employer to withhold taxes for the municipality that is an employee’s principal place of work, as long as the employee does not work more than 20 days in the calendar year in another municipality.
  • The Independent Contractor Occasional Entrant Exception “generally applies to individuals who earn non-wage compensation for performing personal services inside a municipality.”
  • The Small Employer Exception allows businesses with less than $500,000 revenue in the preceding taxable year to withhold municipal income tax for the employer’s “fixed location,” if one exists, even if employees work in other taxable municipalities.

There will certainly be questions regarding the new municipal income tax rules. The Ohio Society of CPAs has released its Municipal Income Tax Withholding and Refund Q&A Guide, which can be found at: https://ohiocpa.com/docs/default-source/tax_resources/muni_tax_withholding_2021_faq_document.pdf

Please contact HBK SALT’s Matt Dodge at mdodge@hbkcpa.com or Tim Adams at tadams@hbkcpa.com for help in complying with the new withholding rules.

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