With the COVID-19 pandemic lingering, Ohio continues to find ways to offer relief to businesses throughout the state. But with 2020 now behind us, those same businesses must consider how relief efforts from this past year could impact their tax situation. In addition, individual taxpayers are experiencing an increase in unemployment fraud, which comes with its own set of issues to address.
Below are some of the key areas Ohio taxpayers should be considering this tax season, which officially kicks off when the state begins processing tax returns on February 12, 2021.
>> Read the Tax Commissioner’s compliance update
1. Fraudulent Unemployment Benefits – Are You a Victim?
Ohio has begun issuing Forms 1099-G to taxpayers who received unemployment benefits during 2020. However, if you receive a 2020 Form 1099-G reflecting unemployment income and did not apply for unemployment, you may be a victim of identity theft.
Here’s what to do if you believe your identity was stolen and used to file a fraudulent unemployment claim:
The Ohio Department of Job and Family Services will issue confirmation emails to everyone who files a report, providing them with information about identity theft and protection. The agency will process the reports, conduct investigations and, if necessary, issue corrections to the IRS. The Ohio Department of Taxation has also issued guidance on how to handle fraudulent 1099-Gs on your tax returns.
>> Find more guidance on unemployment insurance fraud on the IRS website.
2. Office Location vs. Home Office: Municipal Income Tax Withholding Uncertainties
Employers and employees continue to seek further guidance regarding Section 29 of House Bill 197 enacted in March 2020. Section 29 temporarily modifies the occasional entrant rule to require employers to continue withholding tax on employee wages based on their office location instead of their personal residence location when working from home during the pandemic. On a positive note, Ohio municipalities agreed to waive income tax nexus for employers that only had residents working from their home during the pandemic.
Legislators are considering modifying withholding rules due to the unexpected length of the pandemic. Further, a lawsuit has been filed against the city of Columbus alleging it is unlawful to tax employees in workplace jurisdictions where the state did not allow them to go into work.
Employees are inquiring with their tax advisers and employers around filing refund claims with these withholding cities. Employers must consider how they provide employee certification when they may not have tracked employer workplace locations during the pandemic. While employees should consider their refund opportunities, several Ohio municipalities have issued guidance that they are temporarily suspending refunds related to COVID period claims until the outstanding lawsuits have been resolved.
3. Unless Legislation Passes, BWC Refunds May Be Taxable
While the BWC issued three rounds of “dividend” checks to sustain taxpayers during 2020, Ohio anticipates mailing Forms 1099-G in early February classifying the payments as grants. As a result, taxpayers will be required to pick up these BWC payments as income on their 2020 income tax filings.
Ohio is debating the classifications of the BWC payments for Ohio Commercial Activity Tax (CAT) purposes. Ohio presently believes they are taxable gross receipts since they do not qualify for any statutory exclusion. Legislators are being asked to create an Ohio CAT exclusion for the BWC payments taxpayers received.
4. PPP Loan and Other COVID Relief Funds: Do Ohio Tax Rules Align with Federal?
Congress passed the Consolidated Appropriations Act, 2021 in late December 2020. The Act includes the COVID-related Tax Relief Act of 2020, providing for the full deductibility of ordinary and necessary business expenses paid with a forgiven or forgivable PPP loan.
While a great measure for federal tax purposes, many states like Ohio may not be in conformance with the taxpayer friendly change. Ohio legislators recently introduced Senate Bill 18 to conform Ohio to the Tax Relief Act of 2020 for both income and CAT tax purposes. Legislators are also considering legislation to address the PPP2 loan program.
However, Ohio taxpayers receiving EIDL Grants (unless they will be paid back), Provider Relief Fund, Ohio Small Business Relief Grant, the Bar & Restaurant Assistance Fund, or a local grant will likely need to include these proceeds in their CAT gross receipts.
Contact Hannah Prengler at email@example.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.