• Normally, an employee pays tax to the city or locality where she or he works. Because of COVID, many employees worked at home during 2020, but city tax continued to be withheld as if the work were still being done in the office. This is problematic if the office and home are in two different taxing districts. The Ohio General Assembly passed a law (Ohio HB 197) last year that said temporary workplaces during COVID are ignored for taxing purposes and everyone is deemed to be working in their normal offices.

    A number of lawsuits have been filed challenging this new law as unconstitutional and another bill being discussed in Columbus could overturn this law as well. It could take years for these to be resolved. In the meantime, it leaves taxpayers in an uncertain position.

    What does this mean for you? If this law is overturned, and you so choose, you might have the option of filing for a refund from the city where you would have worked.

    Let’s look at an example: if you normally work downtown Cincinnati, your employer withholds 1.8% of your wages in city taxes. Let’s say you live in Terrace Park, which doesn’t have an income tax and earn $60,000 per year. Your employer is withholding over $1,000 per year in city tax. In the past, if you traveled 30 days a year out of the area, you could have filed for a refund of a proportionate share of that tax you paid to Cincinnati because you worked more than 20 days outside the city. Cincinnati didn’t like it and make it difficult to get the refund, but it was your choice. Therefore, theoretically, if you worked at home from March through December, 2020, you could apply for a refund of 10/12th of the tax they withheld in 2020 or about $900 – except that the State said you can’t.

    If the law changes retroactively in the future, you will be able to file for this refund at that time, if certain conditions are met, but you have to plan ahead –

    • You will need to have records showing what days you worked outside of the city. These records are to be kept contemporaneously, so if you think you might be filing for a refund later, create these records now while it is fresh in your mind;
    • You will need a letter signed by your supervisor or employer confirming the dates you worked outside of the city during the year; get that signed now before your supervisor changes and forgets where you worked;
    • You will need to be within the time period that qualifies for the statute of limitation for filing a refund claim with the city you are asking for a refund. This could differ with different cities (Cincinnati is 3 years) so check with your city to be sure. If we reach the outside of this period and still don’t know the answer, you will need to file at that time anyway to keep your file open legally and not lose the right to an eventual refund;
    • If you also live in a taxing jurisdiction, you will also have to file a return to your city of residence and may have to pay them all or part of your tax refund.
    • You will need to reach out to us if you want our help in filing a refund claim at the time.

    This strategy gets complex and can be costly to pursue. It is estimated it will cost the cities approximately $300 million if this is overturned and taxes must all be refunded. We cannot predict what will happen but are making you aware of the situation so you can plan ahead if you want to be able to claim any potential refunds. If you have any questions, feel free to reach out and we will help if we can.

© Copyright 2013 - Zimmerman and Company CPAs - Website Developed by OodleTech