Normally, an employer is required to withhold and remit taxes to the municipality which is the employee’s “principal place of work.” Ohio uses a three-step test to determine a principal place of work:
- It’s the location where an employee is required to report to work on a regular and ordinary basis (Fixed Location). If not applicable, proceed to Step 2.
- If no Fixed Location, then it’s the worksite within Ohio that the employee is required to work on a regular and ordinary basis (Worksite). If not applicable, proceed to Step 3.
- If neither Step 1 nor Step 2 is applicable, then the location, within Ohio, in which the employee spends a majority of the calendar year performing services for the employer. If the number of days is equal then the employer must withhold and remit to the two or more municipalities.
Ohio carves out an exception from the normal rule for employers who qualify as a “small employer.” A small employer is defined as an employer with total revenue of less than $500,000. A small employer is only required to withhold based upon the employer’s Fixed Location.
However, an employer is not required to withhold and remit to a municipality if an employee will be working in the municipality for 20 days or less (20 Day Rule). Once the 20 days have passed, then the employer is required to withhold and remit to that municipality for days 21 and beyond, unless the employee asks to retroactively withhold and remit for days 1-20 or an exception applies. Finally, if the employee will be working in the municipality for less than 20 days, then an employer may still be required to withhold and remit to that municipality if:
- The employee’s principal place of work is in that municipality,
- It is reasonably expected that work at a worksite location will last longer than 20 days, or
- The Employee resides in that municipality and requests the employer withhold and remit to that municipality.
Effective, March 27, 2020, House Bill 197 temporarily suspended the 20-day withholding requirement for an employer. An employer is not required to withhold to an employee’s principal place of work if the principal place of work has only become the “Fixed Location” due to the Governor’s emergency declaration. Therefore, if an employee is now working from home due to the coronavirus pandemic, and will exceed the 20-day threshold, an employer does not need to withhold to the employee’s home during the emergency declaration and for 30-days after the declaration (unless previously doing so).