Ohio Employers Subject to New Municipal Tax Withholding Rules

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.

About the Author(s)
Matt Dodge is a member of the HBK State and Local Tax (SALT) practice with a focus on sales/use tax. Matt has vast experience in the construction, oil & gas, manufacturing, retail, service provider and transportation industries. He can be reached at 724-934-5300, or by email at mdodge@hbkcpa.com.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.