On June 30, 2021, Governor DeWine signed House Bill 110 into law. This bill covers Ohio’s budget for the next two years and contains multiple changes to Ohio taxes, from a reduction to personal income tax rates, municipal payroll withholding updates and a new exemption from sales/use tax for employment services.
Personal Income Tax
HB 110 reduced the individual income tax rates by 3% and eliminated two top income tax brackets. The new tax rates for 2021 are now:
|2021 Income Bracket||2021 Tax Rate||2020 Income Bracket||2020 Tax Rate|
|$0 to $25,000||No tax imposed||$0 to $22,150||No tax imposed|
|$25,001 to $44,250||2.765%||$22,151 to $44,250||2.85%|
|$44,251 to $88,450||3.226%||$44,251 to $88,450||3.326%|
|$88,451 to 110,650||3.688%||$88,451 to 110,650||3.802%|
|$110,651 and up||3.99%||$110,651 to $221,300||4.413%|
|$221,301 and up||4.797%|
Municipal Payroll Withholding – Employer Obligation
Due to the Covid-19 pandemic, Ohio passed House Bill 197 in March 2020 that required employers to continue to withhold payroll taxes in the city of the employees principal place of work during Ohio’s state of emergency as most employees started to work remotely. HB 197 also temporarily suspended the 20 day grace period to update employee withholding to 30 days following the end of the state of emergency.
The governor lifted the state of emergency on June 18, 2021 and based on HB 197 employers would need to update withholding for employees that continued to work remotely by July 18, 2021. Under House Bill 110, employers now have until December 31, 2021 to update withholding for employees that continue to work remotely.
Municipal Payroll Withholding – Employee Refund
For the 2021 tax year, HB 110 will allow employees to request a refund of the tax withheld to their principal place of work under the state of emergency withholding rules. Employees will need to request a statement from their employer confirming the number of days that employee worked at the principal place of business and that the employer did not refund any withholding directly to the employee.
This provision will benefit employees that live in city that has a lower tax rate or does not allow a 100% credit for taxes paid to the city of their principal place of work.
Sales and Use Tax – Employment Services to become Exempt
Beginning October 1, 2021 employment services will be exempt from sales tax. This exemption covers temporary placement services where a business hires a third-party to supply temporary workers that will be supervised by the business. The exemption also covers employment placement services where a third party is used to help recruit and fill open positions at their business.
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