Tuesday, January 20, 2015

Ohio Passes Municipal Income Tax Reform

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On December 19, Governor John Kasich signed legislation that will reform municipal income taxation in Ohio. The legislation affects nonresidents who work in a municipality by increasing the withholding threshold for the "occasional entrant rule" from 12 days to 20 days. House Bill 5 will apply to Ohio municipalities on January 1, 2016.

Generally, an employer will not be required to withhold municipal income tax on wages paid to a nonresident employee for work performed there for 20 or fewer days in a calendar year. Instead, the employer will withhold municipal income tax for the employee's principal place of work location. The legislation also clarifies that an employee will be considered to have spent a "day" performing services in the municipality only if the employee spends more time there than in any other municipality on that day.

There are some exceptions to the 20-day withholding rule. The rule does not apply to professional athletes, professional entertainers, and public figures. Also, small employers (less than $500,000 in annual revenue) can withhold municipal income tax for their employees based on their fixed location.

The new legislation also establishes uniform filing and payment requirements. It will remit taxes monthly if collected taxes exceed $2,399 in the previous calendar year or were more than $200 in any month during the previous calendar quarter. It will remit taxes quarterly if these thresholds are not met. Municipalities can require employers to remit taxes semiweekly if withheld taxes exceeded $11,999 during the prior calendar year or $1,000 during any month.

Read PayState Update: Issue No. 1, Vol. 17 for more information on the new law.