City tax – ugh (eye roll). The Ohio Legislature has heard your many complaints about municipal taxation and passed Ohio House Bill 5, which may make your life a little easier. This bill creates consistency across municipalities in terms of withholding taxes, taxation of pass-through entities, work city requirements, and more.
Following are some of the key changes that will take effect on January, 1, 2016:
Changes That Apply to Businesses
In previous years, business owners that had employees temporarily working in different municipalities sometimes struggled to determine the different requirements of the various municipalities. Some municipalities required a monthly remittance if the amount of municipal income tax withheld was greater than $100, whereas others require employers to file monthly regardless of the amount withheld. There was also inconsistency in terms of filing dates. Some required payments on the twentieth of the month, while the due date for other municipalities was the last day of the month. Going forward, these will be the same across the board. Municipal payroll filing deadlines have been revised to correspond to the federal and state deadlines. Following are the details:
- If withheld taxes exceed $2,399 in the previous calendar year or exceeded $200 in any month during the previous quarter, taxes must be remitted monthly. Payment is due on the fifteenth day of the month following the month the tax was withheld.
- For businesses with estimated annual municipal tax liability under $200, they may pay annually.
- If taxes withheld for a municipality falls between $200 and 2,399 annually, a business must remit municipal taxes withheld on a quarterly basis. Remittances are due on the last day of the month following the end of each calendar quarter.
- Exception – some municipalities may require an employer which withheld $12,000 or more in the preceding calendar year or more than $1,000 in any month of the preceding calendar year in their respective municipality to file on a semi-monthly basis. Due dates for the semi-monthly filers are 3 banking days after the 15th of the month and 3 banking days after the end of each month.
Occasional Entrant Provision
There has also been a change in the number of days an employee may work in a municipality without the company incurring municipal tax for that municipality. An employee may work up to 20 days in an Ohio municipality in a year without incurring work-place income tax liability. Once the employee reaches 21 work days in that municipality, the employer must withhold tax for that municipality. However, this rule does not apply to small employers (businesses with less than $500,000 in annual gross receipts). Small employers are only required to withhold for the municipality in which the employer is physically located.
Taxable Income Provisions
- Net Operating Losses may be carried forward 5 years.
- Pass-Through Entities
- Partnerships and LLCs – Municipal net profit taxes will be imposed at the entity level. The owner(s) will need only file in their city of residence. Previously, municipalities were able to tax pass-through entity net profits at either the owner level or the entity level.
- S Corporations – This does not apply to owners of S Corps. Those municipalities which previously voted to tax resident S corporation owners at the shareholder level may continue that treatment.
Changes That Apply to Individuals
- Estimated taxes are to be paid if balance due will be greater than $200. Previously, there were variances between cities as to the annual tax liability threshold at which estimated payments were required.
- Taxpayers with estimated annual tax liability to a city of less than $200 can remit when filing their tax return.
- A taxpayer may receive a refund of municipal taxes overpaid only if the amount overpaid is greater than $10.
- Likewise, neither individuals nor businesses will be required to remit tax due that is less than $10. However, even if the tax due is less than $10, the taxpayer must still file a return.