Relationships. Commitment. Results.

icon Careers

Tax Matters

How Ohio’s New Municipal Income Tax Withholding Requirements Impact Work-From-Home Arrangements

A: In Ohio, 649 municipalities and 199 school districts impose income taxes where an employee works. And, employers are generally required to withhold applicable municipality and school district income taxes. When employers first instituted work-from-home and hybrid work policies, it was unclear what municipality’s taxing rules applied if an employee’s home and the employee’s office are in different municipalities. Ohio’s 2021-2022 budget law, passed in 2021, made Ohio’s municipal income tax withholding requirements clearer.

A: Effective January 1, 2022, employers must withhold municipal income taxes where an employee’s work is actually performed, for each portion of a day worked in any taxing municipality where the employee performs services for the employer. The rule applies even when an employee works in a different municipality in the same day.

A: An employee, John, works from home three days per week and in the office two days per week. John’s home is in Cleveland Heights, Ohio, but his office is in Cleveland, Ohio. Both Cleveland Heights and Cleveland impose municipal income taxes. Under the new law, John’s employer must withhold and pay over Cleveland Heights income taxes for the three days John works from home, and Cleveland income taxes for the two days John works from the office.


The general rule has several exceptions, including a 20-Day Occasional Entrant Exception, Independent Contractor Occasional Entrant Exception, and Small Employer Withholding Exception. Walter Haverfield will cover the exceptions and employer best practices in an upcoming client alert.

The Ohio Society of CPAs has released a comprehensive Municipal Tax Withholding and Refund Q&A Guide, which can be downloaded here.

IRS Extends Tax Filing Deadline

A: The Internal Revenue Service (IRS) is delaying this year’s deadline to file individual federal tax returns (Form 1040). The new deadline is May 17, 2021. The extension is automatic, and individual taxpayers do not need to file any forms or contact the IRS to qualify.

A: States set their own deadlines, and Ohio’s deadline remains April 15, 2021, until further guidance is issued.

A: Despite the new IRS deadline, the IRS is urging taxpayers to consider filing as soon as possible. The agency is delayed in processing returns already filed, and by further delaying filing, taxpayers entitled to a refund may experience longer waits to receive those refunds.

A: Additionally, individual taxpayers (including those who pay self-employment tax) can postpone federal income tax payments for the 2020 tax year to May 17, 2021, without penalties and interest, regardless of the amount owned. Penalties, interest, and additions to tax begin to accrue on unpaid balances as of May 17th. But, estimated tax payments that are due on April 15, 2021, remain due on April 15th.

Paycheck Protection Program: IRS Confirms Expenses Are Not Deductible

A: In its recent ruling, the IRS ultimately concluded that if a business reasonably believes that a PPP loan will be forgiven in the future, qualifying expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.

A: According to the IRS, since businesses are not taxed on the proceeds of a forgiven PPP loan, the qualifying expenses are not deductible. The IRS rationalizes this position by claiming that this results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.

A: According to the IRS, in the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses in the future.