Ohio Reforms Municipal Tax Laws
Author: Marta Moakley, XpertHR Legal Editor
January 14, 2015
Ohio Governor John Kasich has signed legislation that will require municipalities levying income taxes to adhere to certain standardized procedures starting January 1, 2016. The law, Sub. H.B. 5, aims to make municipal tax collection more consistent (e.g., by implementing uniform filing and payment requirements), which may make the entire process less burdensome for employers required to withhold such taxes from employees' pay.
Increased Withholding Threshold
The new law changes the occasional entrant rule so that an employer is not required to withhold municipal income tax from wages paid to a nonresident employee who works in the municipality for 20 or fewer days in a calendar year. Under the current occasional entrant rule, the threshold number of days is 12 or fewer. However, the threshold will not apply, and an employer will be required to begin withholding municipal income tax immediately, if the:
- Employee's principal workplace is in the municipality;
- Employee is a professional athlete, entertainer or public figure;
- Employee is a resident of the municipality and has requested withholding; or
- Employee has worked at one or more presumed worksite locations within the municipality.
A presumed worksite location is a construction site or temporary location of the employer in Ohio at which the employer reasonably expects the employee to work for at least 20 days, either by the nature of the services or under a contract.
An employee working for an employer that has less than $500,000 in annual income will only be taxable in the municipality where the employer has a fixed location.
The law permits withholding agreements between employers and municipalities.
Standardized Definitions
The law standardizes certain definitions across municipalities, including:
- Base of operation;
- Employer;
- Employee;
- Domicile;
- Fixed location;
- Income;
- Municipal taxable income;
- Worksite location; and
- Principal place of work.
Remittance of Municipal Taxes
Employers must remit municipal taxes either on a monthly or a quarterly basis depending on collected amounts. An employer must file on a monthly basis if its collected taxes:
- Exceeded $2,399 in the previous calendar year; or
- Exceeded $200 in any month in the previous calendar quarter.
An employer must file on a semimonthly basis if its collected taxes exceeded $11,999 in the previous calendar year, or if it withheld taxes in excess of $1,000 in any month. An employer may file annually if its estimated annual tax liability for a municipality will be less than $200.
Municipalities will have to meet several new requirements, including adhering to an annual tax return filing schedule. Although the law has standardized certain procedures, it does not centralize municipal income tax collection.
