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May 18, 2021

Ohio General Assembly considering clarifications to Ohio municipal withholding provisions enacted in response to COVID-19

In light of Governor DeWine's recent announcement that most health orders related to COVID-19 would be lifted on June 2, 2021, the Ohio General Assembly is considering legislation to clarify the application of Section 29 of House Bill 197 (Section 29), enacted in response to the pandemic. Section 29 allows employers to continue withholding municipal income tax based on an employee's principal place of work for the many employees working from home due to COVID-19 (see Tax Alerts 2020-2098, 2021-0695, 2021-0912).

As enacted, Section 29's provisions sunset 30 days after the end of the emergency period declared by Governor Mike DeWine in his March 9, 2020, Executive Order (EO 2020-01D). While most health orders related to COVID-19 will be lifted on June 2, 2021, the Governor did not indicate whether he is lifting EO 2020-01D, which means that Section 29's provisions still apply after the health orders are lifted in June.

While the provisions of Section 29 were intended to provide relief to employers from the administrative burden of withholding and remitting tax to each employee's municipality of residence, it did not expressly address which jurisdiction (place of residence vs. principal place of work) could tax a teleworking employee's wages. This has given rise to employee challenges to those provisions (most recently discussed in Tax Alert 2021-0912).

The Ohio General Assembly has been considering a number of legislative initiatives in this area ranging from an immediate repeal of Section 29 to a longer sunsetting of these provisions. The General Assembly is currently considering a substitute version of Senate Bill 97 (Sub SB 97), which would make several clarifications to Section 29, including the following:

  • Employer withholding tax: Retains the withholding protections of Section 29 through December 31, 2021. This provision would give businesses time to set up new systems to track employee work locations outside of their primary historic work location and comply with municipal income tax withholding requirements after the COVID-19 restrictions are lifted.
  • Employee wage tax: Clarifies that Section 29's purpose was to expand the protections of the 20-Day Occasional Entrant withholding rule for the benefit of employers and municipalities due to the COVID-19 restrictions and was not intended to require nonresident employees to pay tax to municipalities where they did not work.
  • Net profits tax: Expressly provides that the payroll factor — one of the three factors used to calculate how much net profit is subject to a municipal net profits tax — remains at the principal city of work.

If enacted, the provisions of Sub SB 97 would impact municipalities by requiring the municipalities that were primary work locations before the COVID-19 restrictions to refund withholding to employees who were working from home due to the COVID-19 restrictions. Those employees, in turn, might be obligated to pay municipal taxes to those locations where they worked during COVID-19. While this would have a fiscal impact on those municipalities, it would also seem to resolve the controversies currently pending on this issue.


Employers and employees should continue to monitor Ohio legislative, administrative and judicial activities surrounding the withholding and sourcing of municipal income taxes during COVID-19. The legislative activity addressing the complications created by enactment of Section 29 indicates that an eventual sunset of Ohio's employee withholding provisions will be enacted. To the extent employees continue to work from home after the COVID-19 restrictions end, their employers will at a minimum need to set up systems to track employee work locations to comply with municipal tax withholding requirements once Section 29 no longer applies.

Likewise, Ohio employees will want to monitor this legislation and consider filing for refund claims if they had taxes withheld by the employer based on principal place of work while working from home due to COVID-19. At the same time, these employees will also have to consider the personal impact of seeking these refunds on their municipal income taxes that will most likely have to be paid to their cities of residence as credits for taxes paid to other municipalities will be affected by refunds. Most municipalities require some level of employer substantiation for refund claims filed by employees for days "worked outside" the principal place of work municipality. Employers should expect that their employees will look to them for assistance in complying with both the refund provisions and the application of new work location sourcing rules.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Bill Nolan (
Workforce Tax Services – Employment Tax Advisory Services
   • Fred Branditz (