Navigating Multistate Payroll Taxes & Remote Workers for Ohio Employers

Becky Byrd

Jun 09, 2023

Ohio’s unique local taxation laws can make running payroll across state lines complicated.

An ounce of preparation can save thousands in tax liabilities, so here are the common payroll and tax issues you should be aware of if you do business across state lines.

The Remote Workforce & Local Taxes

Remote and hybrid employees can trigger tax implications anywhere, but Ohio’s local taxation rules – which are some of the most complex in the country – make the issue of remote and hybrid work particularly complicated for workers and employers in the state.

The Ohio municipal tax rules state that “employees should be taxed where work is performed”. This can be an administrative challenge for both the employer and employee for remote, hybrid and transient employees.

Delivery drivers, contractors and salespeople have always had to contend with this issue. As remote work and hybrid work schedules continue to transform the workplace, it’s a topic that may impact your payroll on a regular basis.

Kentucky & Indiana Tax Regulations

The way neighboring states regulate income tax adds an additional layer of complexity to the way hybrid and remote work is taxed in the Ohio area.

For example, Kentucky and Indiana have reciprocity with Ohio, which means that Kentucky and Indiana residents can request their home state taxes be withheld as they are not subject to Ohio state tax. But Ohio reciprocity only applies to employees who travel into Ohio for work.

To further complicate matters, states define jurisdiction in different ways. For instance, Indiana taxes employees by county, Kentucky defines jurisdiction on both local and county levels, whereas Ohio only does so locally.

Payroll Automation & Taxes

Many employers, especially smaller businesses, rely on payroll software or providers instead of having a full-time employee. Using software can be a time- and money-saving move; however, there are tax pitfalls to keep in mind – especially if your state’s tax regulations are complex.

Suppliers like Paycor and ADP don’t always offer users detailed guidance about setting up payroll in specific jurisdictions. In states like Ohio, navigating labyrinthine guidelines without clear professional guidance can quickly become confusing. That confusion is often compounded when remote and hybrid employees are added to the mix.

If payroll isn’t set up correctly, the downstream impacts can cause major headaches.

Payroll software providers may penalize employers if account numbers are missing.
If it’s discovered that taxes (state or local) are not set up properly, it can be costly to correct.
Beyond untangling the mess, disorganization may end up with disgruntled employees who expect payroll to be properly set up.

Get the Support You Need

For business owners who operate with employees across state lines, engaging with an accountant who is well-versed in the ins and outs of local tax laws can help you stay compliant, and save time and money.

Kirsch CPA Group’s holistic, forward-looking, and results-oriented approach to accounting has helped countless clients navigate the financial complexities born from hybrid and remote work. Our team of experienced CPAs supports all payroll activities, including taxes, multistate compliance, and payroll software assistance.

If you’re ready to streamline your payroll activities, speak with a Kirsch CPA Group multistate tax expert today.

More Resources

Guide: Next Level Accounting Services for Your Growing Business

Guide: Build a Better Business by the Numbers

Case Study: Strategic Accounting Support from Acquisition to Sale

About The Author

As an expert in QBO, tax planning, and Federal, State and Local Tax, Becky provides business owners with…

bbyrd@kirschcpa.com

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