Posted by Karen Raghanti, CPA, MT
Amended Substitute House Bill 5 (HB 5) was signed into law on December 19, 2014, but its impact on employers that have employees who enter multiple cities began on January 1, 2016. Below are the important provisions employers should note.
- The “occasional entrant rule” will increase the number of days to 20 whereby a traveling employee may enter a municipality before their employer is required to withhold on wages earned.
- Employers will generally be required to begin withholding on the 21st day the employee conducts business within a municipality.
- There are limitations under the new law. For example, if an employer expects the employee will work within a municipality greater than 20 days, for example, at a construction site, the employer will be required to begin withholding on day 1.
- If an employee is working in a city and falls under the 20-day exception, withholding should be performed for that day at the principal place of work. This is determined in the following order: 1) fixed location of permanent place of doing business; 2) worksite location such as a construction or temporary site; or 3) where it is anticipated that the employee will spend the greatest amount of days performing services during the calendar year.
- The only instance where the 20-day exception can result in zero tax being withheld is where the principal workplace or taxpayer’s resident city is a nontaxable municipality.
- A “day” is considered spent working in the municipality in which the individual performed most of his or her services that day. The employee’s day can only be allocated to one municipality each calendar day.
- A “small employer” withholding exception will be available for businesses with gross receipts of less than $500,000. These businesses will not be subject to 20-day rule and will only be required to withhold income tax for their principle work municipality.
- A new uniform withholding schedule outlines tax collection thresholds for monthly and quarterly filers and will allow municipalities to enact rules requiring semimonthly withholding when collected taxes exceed a defined threshold.
Below is a schedule as published by the OSCPA:
- In addition to the schedule above, municipalities can also require semimonthly remittance if an employer’s preceding year withholding requirement exceeded $11,999, or if in any month in the preceding year the requirement exceeded $1,000. If semimonthly is required, taxes withheld must be remitted within three banking days after both the 15th day of the month and the last day of that month.
It is also important to note the following regarding due dates:
- The due date has been moved up from last day of the month following the end of the quarter to the 15th day after the end of the quarter.
- Due dates may vary between municipalities. Some municipalities require payment from quarterly remitters to be postmarked by the due date, whereas payment from monthly remitters must be received by the tax administrator by the due date. It is important to confirm your city’s local ordinance.
We continue to work with our clients on helping them plan for any and all opportunities related to HB5. Please contact Karen Raghanti at firstname.lastname@example.org or Hannah Prengler at email@example.com to discuss your situation.
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