COLUMBUS – Ohioans might enjoy working at home even as COVID-19 restrictions lift, but most Ohio cities could take a financial hit because of that option.
How much of a hit? That's nearly impossible to tell.
Here's why: Changes included in the state's two-year budget would allow commuters who live in one city but work in another to receive a refund for any income taxes their employers collected while their office sat vacant in 2021.
Not all work-from-home employees will take advantage of the refund, though.
If someone works in the same city as they live, that's a wash. If someone works in a city with a substantially similar tax rate as their home city, then they might not seek a refund because the amount would be minimal. In many cases, cities offer credits to offset the difference in income tax rates, complicating the equation.
"We don’t know how many people are going to be filing for a refund," said Kent Scarrett, executive director for the Ohio Municipal League, which lobbies Ohio lawmakers on behalf of cities and villages. "Some may not take advantage of it."
But those working from home in townships without income taxes or municipalities with lower tax rates could jump through the hoops to get their refunds.
Cities have to account for lost tax revenue from those not working at their offices and revenue gained from those working at home in that city. The crisscrossing tax money – and the uncertainty of how many people will file for a refund – could be a budgeting nightmare for municipalities.
An analysis from the Regional Income Tax Authority (RITA), which collects municipal income tax for 330 Ohio jurisdictions, found 85% of cities analyzed would be net losers if 20% of employees worked from home. Municipalities would lose between $35 million and $105 million in that scenario.
The Greater Ohio Policy Center estimated Ohio’s six largest cities could lose $306 million annually because of the change in tax collection.
Local officials might not know the full financial impact until Ohioans file their taxes next year, said Keary McCarthy, executive director of the Ohio Mayors Alliance.
Still, city officials are pleased that Ohio lawmakers aren't going to offer municipal tax refunds for the 2020 tax year – a change added in the Senate but removed from the final budget.
For one, the tax year is already closed so clawing back that money now would be an administrative mess, Scarrett said.
Additionally, many more Ohioans worked from home in 2020 because of Gov. Mike DeWine's orders closing businesses to slow the spread of COVID-19. The financial hit would have been greater in 2020 than it will be in 2021.
As more Ohioans work from home, this income tax conundrum isn't going away anytime soon, McCarthy said. "The one thing that is probably going to stay with us is remote working."
Jessie Balmert is a reporter for the USA TODAY Network Ohio Bureau, which serves the Akron Beacon Journal, Cincinnati Enquirer, Columbus Dispatch and 18 other affiliated news organizations across Ohio.