On March 27, 2020, Ohio Governor Mike DeWine signed House Bill 197 into law, which includes a provision that clarifies the treatment of municipal income tax withholdings while employees are working from home rather than their principal place of business.

This provision was put in place for the emergency period, plus an additional 30 days after the emergency is lifted and allows employers to circumvent the normal municipal withholding rules. Without this legislation, employers would have needed to track an employee’s days while working remotely and start withholding to each employee’s home city once the 20-day rule had been breached. Other states have taken a similar approach in allowing employers to treat employees that are working remotely as though they are still working from their principal place of work.

As the economy continues to reopen and employees are returning to the workplace, companies are evaluating whether they want to continue flexible working arrangements on a more permanent basis. These decisions are generally made for both the ease of the employee and as a way for companies to potentially downsize their need for office space.

One thing that often gets overlooked in these types of decisions is the state and local tax impact. Properly withholding taxes from employees and subjecting the company to municipal net profits tax filing obligations (in Ohio) are factors that should be considered when evaluating the overall impact of remote work arrangements. Allowing employees to work remotely generally provides a company with the requisite tax nexus (minimum connection to allow a jurisdiction to impose tax) in each city/state. Affording employees with the ability to split time by working remotely some days and at the company location on others provides even more complexity as the company will need to track days worked by each employee at each location.

While remote working can be an effective way to both boost employee satisfaction and potentially drive down costs, the burden of tracking and withholding employees as well as the additional tax compliance costs of filing in multiple jurisdictions should be factored into the decision.

If you have questions about how implementing a remote working arrangement will affect your business post-COVID-19, please contact your BMF Advisor.

Visit our COVID-19 Resource Center for information and resources for you and your business.

About the Authors

Mark A. Rossetti
CMI
Senior Manager, State and Local Tax Services

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