Employers in the state of Ohio are required to withhold municipal income tax for an employee’s principal place of work. The rationale behind municipal income taxes is that city services (police, fire, EMS, roads) are being used by employees working in that city and should help with the economic burden of providing those services.
In March 2020, when the COVID pandemic hit the US and Ohio went on lockdown, the Ohio General Assembly passed an emergency coronavirus relief bill. Included in that bill was a mandate that employers continue to withhold at the work city of employees even though many employees were physically at their homes and working virtually. This position is now being challenged as unconstitutional. Past precedence with the Ohio Supreme Court has held that a city must show a ‘minimum connection’ with the person it seeks to tax. That connection is the key part of the test that the court uses to weigh challenges to income tax laws.
Why does this matter?
Many municipalities in the state of Ohio do not allow for 100% credit for taxes paid to other cities, thereby increasing a taxpayers’ overall city tax liability. Also, most townships in Ohio do not have city income tax at all, so city tax withheld for the work city that was remitted during a time when that taxpayer worked from home could be refunded to the taxpayer. For example, an employee who makes $60,000 and works in a 2% city will have $1,200 withheld for city taxes by their employer. If this employee lives in a township and worked from home all of 2020, they would be eligible for a $1,200 refund.
The Regional Income Tax Agency, which is the municipal tax collection agency for many jurisdictions within Ohio, recently posted an update to their RITA Refund Form 10A. See below. They have proactively identified the Coronavirus issue and they are making taxpayers aware that this issue is going through litigation. The litigation in question is a lawsuit filed by the Buckeye Institute against the city of Columbus and Ohio Attorney General Dave Yost, asking to invalidate a state law that permitted taxes for the normal work to be collected during the pandemic when work shifted to home or elsewhere.
Employees who work in a RITA municipality and do not get 100% credit for taxes paid to another city, should file Form 10A and check box 2 to report the days worked outside their work city. This link will tell you if your city allows for 100% credit https://www.ritaohio.com/municipalities. You should attach a schedule of the days worked outside your work city (at home or travelling), your W-2, AND you and your employer will need to sign this form to verify the days worked outside the work city.
For employees that work in a CCA city (Cleveland) or a city that collects its’ own taxes, similar steps should be taken to obtain refunds.