Ohio Supreme Court Addresses Remote Worker Withholding Rule

March 25, 2024

During the height of the pandemic, the Ohio legislature passed House Bill 197, which temporarily suspended the requirement that an employer withhold to the municipality in which an employee performed services. The law allowed an employer to continue withholding to the municipality, which would have been their “principal place of work,” notwithstanding their temporary work-from-home status due to the pandemic.

Traditionally, under Ohio law, an employer must withhold and remit taxes for its employees at the employee’s “principal place of work.” Under the statute, “principal place of work” is defined as “the fixed location to which an employee is required to report for employment duties on a regular and ordinary basis.” In layman’s terms, that usually means the employers office or factory.

Challenges to House Bill 197

However, House Bill 197 was challenged by an Ohio taxpayer, indicating that this temporary change was unconstitutional under both federal law and Ohio law. Last month, the Ohio Supreme Court laid this argument to rest. While the impact of HB 197 was temporary, the Ohio Supreme Court’s decision will significantly impact how the Ohio legislature may attempt to affect the taxation of Ohio remote workers in the future, if such a need arises. Here are the key highlights from the Court’s decision:

Municipal Tax Collection

Under the Court’s decision, upholding the constitutionality of HB 197, an employer may continue to withhold to the employers office or work location. Notwithstanding that, the employee may have temporarily transitioned back to their home or alternative location due to the Stay-At-Home order. The Court’s decision did not address whether a remote employee was entitled to a refund for taxes the employer may have withheld or the impact to non-Ohio residents with connections to an Ohio work location.

Continued Development of Remote Workers

During the pandemic and thereafter, there has been a steady rise in the number of remote workers. Employers must understand their employee withholding obligation at the state and local levels. If you have employees who originally began in the office but have now transitioned to entirely or partially remote, ensure that you’re appropriately withholding to the correct taxing jurisdiction.

Impact to Employer’s Going Forward

Since HB 197 was temporary during the height of the pandemic, employer’s should continue to use the traditional employer withholding rules. Ohio uses a three-step process to determine the withholding location. Ohio recognizes an exception for small employers and the 20-day rule, so employers should understand their continued withholding and remittance obligations.

Future Implications for Employers

While the Ohio Supreme Court has affirmed the constitutionality of House Bill 197, the Ohio legislature still has an opportunity to address the rise of remote workers and the impact on municipalities and employers. For more information and discussion on dealing with remote workers, please feel free to contact a member of our Tax Practice Group, including our Tax Practice Chair, Demetrius Robinson (614.427.5749; DJR@kjk.com).