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There’s one more thing you may want to consider adding to your tax prep to-do list: Filing an income tax return with the city where you normally would be at work if it weren’t for COVID-19.
For some workers, it could mean a fat refund. For others, it may not be worth the headache of assembling all the documentation that will be required for a small amount of money.
At issue are the taxes that commuters pay to the city where they used to spend their day at the office. Many workers have continued to pay those taxes even though they’ve been working from home throughout the pandemic.
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“We’re seeing savings all over the map. It depends on the situation of course,” said Ron Lykins, owner of Ron Lykins CPAs in Westerville.
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Figuring out whether it’s worth it will require doing some math.
For workers who live in townships where there is no income tax, it’s easy, said Linda Sheridan, managing partner for Snyder & Co. based in Lancaster.
“It’s a slam dunk, 100%. I work from home, live in a township, not in a city and I get all my money back,” she said.
For workers who live in a city that’s not the city where their office is located, it’s not so simple. Whatever they may gain by filing a return in the city where they work, they may owe to the city where they live. Also factoring into the decision is that many cities will impose income taxes on workers even if those wages are earned elsewhere.
Making it even more confusing is that some workers have a hybrid schedule in which part of their week is spent at the office and part of the week is spent at home.
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To be clear, nothing has changed.
What does Ohio tax law say?
Ohio law allows cities to tax the people who live and work within their borders. The idea is that people who work there should help pay for the services they use, such as sidewalks, roads, police and ambulances.
It always has been the case that workers in Ohio taxed in a city where they don’t work are eligible to recover that tax money. Those workers likely are accustomed to filing tax returns for those cities.
What has changed is COVID-19 and what it has done for work by expanding the pool of workers who could seek a refund from the city where they work.
“It’s pretty complex,” Sheridan said. “People are pretty unsure of how the rules work.’’
As part of their annual tax preparation for clients, Sheridan and Lykins said their firms have been asking clients about whether they should be consider filing a return for the city where they work.
What you have to do to get that commuter tax refund
In the case of filing a Columbus tax return, workers seeking a refund will have to document their work schedule, including showing when they were away for holidays, vacation and illness, and showing the days they worked from home and the days they worked at the office.
The Columbus income tax return form includes a requirement that workers claiming a refund must get each employer to sign and certify the claim. That includes the name of the employer, an official’s signature and title.
“You don’t know if it’s worth the hassle until you do that work,” Lykins said.
Other cities have different rules and can be further complicated if spouses work in different cities, he said.
The biggest savings will be for those who live in townships; the tax refund for others could be marginal.
Lykins advice for tax do-it-yourselfers: “Don’t do it. See a pro.”
Sheridan said when the math is done, it may not matter to most taxpayers. In some instances, the savings may be small, she said.
“I don’t expect a lot of people in this situation to mess with it, to be honest,” she said.
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What’s changed with Ohio tax filing
COVID-19 has changed the way companies do business.
The rule has always been that employers have to withhold tax from their employees and pay corporate city taxes on the net profit that business earns in any city. Before COVID, all employees came to the office and the business earned revenue only in the city where the office was located.
In the new work from home model, businesses earn revenue in every city that an employee is working from, Sheridan said. They are required to withhold tax from employees for any city in which they work more than 20 days in a calendar year, and the company now has to allocate its city taxable income to all those cities as well.
Workers never had to file taxes with the cities they worked in but they had to pay them, Sheridan noted. They had to file to their city of residence and possibly pay tax to both cities.
The benefit for those who work exclusively from home is that now employees are required to pay taxes only to one city because their work city is the same as their residence, she said. Employers with workers on a hybrid schedule, splitting time between home and an office location, will have to withhold taxes from both cities based on the time these employees work at home and the time they work at the office.
Can I get a tax refund for working at home in 2020?
That’s to be determined.
State lawmakers passed a bill during the shutdown that let municipalities continue collecting taxes from these former commuters until the governor ended Ohio’s state of emergency.
They later changed their minds and decided Ohioans could seek refunds for the days they worked from home in 2021 but not 2020.
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The Buckeye Institute, a conservative think tank, has sued, charging that Ohioans should be allowed to get back those tax dollars for 2020 and that the legislature’s actions were unconstitutional. That case is pending before the Franklin County Court of Appeals and ultimately could be decided by the Ohio Supreme Court.
@BizMarkWilliams