I worked from home last year. How can I get an income tax refund from Akron, other cities?

It's officially tax season. And thousands of Summit County residents have a new calculation to make: Are potential income tax savings from working at home worth the hassle?

Paused for 2020 as the Ohio economy shut down, commuters working outside of the cities their employers call home can again choose where to send their local income taxes, according to Ohio law.

More: If workers don't return to offices in Akron, what will happen to the municipal income tax?

More: City coffers could suffer if employers adopt permanent work-from-home arrangements

Every worker’s situation presents a unique cost-benefit analysis. The savings could be significant for some and marginal for others. Some could even pay more if they sought a refund.

Here’s a few examples to illustrate how remote work during the pandemic is complicating tax returns.

A Hudson resident who reported to an office in Akron before the pandemic worked from home in 2021. The employer deducted 2.5% from each paycheck last year to cover the 2.5% municipal income tax Akron charges. The income tax rate in Hudson, however, is 2%.

Downloading and filling out Akron's income tax refund form (available here) would return the 0.5% difference to the worker. If this scenario applied to the median Hudson household, which earns $134,963 annually, the refund would be $675.

If the reverse were true, with the taxpayer working from home in Akron for a company in Hudson, a refund from Hudson would result in the worker paying the full 2.5% in Akron, essentially reducing the worker's annual income after taxes.

Some scenarios are net neutral for workers but impactful for cities.

Because Cuyahoga Falls, Fairlawn, New Franklin and Twinsburg all charge 2% income tax, seeking a refund would not result in the worker paying anything more or less. But it would shift the income taxes from one city to another.

At-home workers living in townships, where state law forbids local income taxes, stand to save the most. Consider a Copley Township resident working from home for an Akron business. At the median household income of $92,705 in Copley, a 2.5% refund puts $2,318 back into the family’s budget.

"Every taxpayers' particulars are going to be different," said Amy Arrighi, chief legal counsel for the Regional Income Tax Agency, or RITA, which processes income tax collections for municipalities in 78 of Ohio’s 88 counties.

"As taxpayers start to look at that, they may decide: 'It's not worth doing this. I'm not going to get really any refund. It's just shifting dollars around,' " Arrighi said. "And some, maybe they’ll see a refund and it's small. They don't want to pay their tax preparer to fill out the paperwork. So, they just say, 'I'm not going to bother.' "

Impact on city budgets

Workers are under no obligation to take action.

“There’s nothing in the law that compels a taxpayer to seek that refund,” said Arrighi. “They don’t have to do it.”

But while they choose the best option for their pocketbooks, cities that rely heavily income tax collections will have to live with their decisions.

“Our members are very concerned with the potential loss of revenue with the issue of companies that are now having their employees work from home,” said Kent Scarrett, executive director of the Ohio Municipal League.

The loss of even a fraction of income tax revenue could negatively impact ongoing maintenance of roads, sewers and other city infrastructure, Scarrett said. With 70-80% of city budgets allocated for police and fire, public service levels could suffer.

“There’s a cascading impact that we anticipate on municipal budgets,” Scarrett said.

Cities will get a clearer picture of the potential loss of revenue after the April 18 deadline for individual taxpayers to file their returns.

Starting Jan. 1, larger Ohio employers with $500,000 or more in annual revenue were required to deduct income taxes from employee paychecks based on where the work is done. This process will give municipalities like Akron an indication of the potential impact by mid-February when business withholdings for January are filed with the city, Akron Finance Director Steve Fricker said.

The Ohio Mayors Alliance commissioned a study released in October that estimated revenue losses for some of Ohio's larger cities. An estimated 3% to 7% hit to Akron's general fund revenue would cost the city $8 million to $20 million. Worst-case scenario, though, the city would still pull in a little more than it did in 2019, according to figures Fricker shared.

What about working from home in 2020?

House Bill 197 paused the long-standing practice of paying income taxes where work is done in 2020 during the COVID-19 pandemic.

An effort by state lawmakers to provide financial stability as offices emptied at the beginning of the pandemic, the stopgap measure kept some revenue flowing to cities like Akron and Cleveland where the bulk of income taxes are paid by people who live elsewhere.

Over the objection of big city mayors and Democrats who represent urban centers, Republicans repealed the emergency provision in the most recent state budget bill.

The politically conservative Buckeye Institute sued over the pandemic relief bill, arguing that cities should not receive revenue for police, fire, roads and other amenities taxpayers didn't use while working from home.

In April 2021, the Court of Common Pleas of Franklin County found nothing unconstitutional about the emergency provision. The Buckeye Institute is appealing that decision with the Ohio Supreme Court.

Municipalities are closely watching the lawsuit. If the appeal is successful, millions of income tax dollars could be clawed back from big cities.

In Fairlawn, for example, a stack of refund requests for 2020 is awaiting the high court's ruling.

“We have a list of 2020 refunds holding pending lawsuit,” said Jake Kaufman, the city’s tax administrator and assistant finance director.

How to file for a 2021 refund

Filing refunds for municipal income taxes is nothing new.

“These types of refund requests have always been around,” said Arrighi. “It’s just that now we expect to see a lot more of them.”

For cities represented by RITA, taxpayers have one stop to file for a refund.

“If a taxpayer worked and lived in a RITA community and they’re seeking a refund, they can do that with RITA,” Arrighi explained. “And because we collect for the home municipality, we can handle the moving of money, so to speak.”

Locally, RITA covers Aurora, Barberton, Boston Heights, Brecksville, Clinton, Cuyahoga Falls, Hudson, Kent, Lakemore, Macedonia, Medina, Mogadore, North Canton, Northfield, Norton, Peninsula, Ravenna, Silver Lake, Streetsboro, Tallmadge, Twinsburg and Wadsworth.

Other cities like Fairlawn, Green and Akron process their own income tax collections. Residents who live or work in these cities will have to download or request income tax refund forms from their cities' websites.

The forms, which have been updated to include COVID as a reason for working elsewhere, generally require workers to list the number of days they worked in and outside of the city. That ratio is used to divvy up the income taxes paid or owed accordingly.

Employers must sign off on the refund requests, verifying that the employee did work from home for all or part of the year.

Arrighi said the refund forms RITA uses now include a check box that helps the agency notify its municipal clients of pending tax shifts. In other cities, tax administrators notify neighboring municipalities of refund requests.

Reach reporter Doug Livingston at dlivingston@thebeaconjournal.com or 330-996-3792.

This article originally appeared on Akron Beacon Journal: Ohio workers file for local, municipal income tax refunds on returns