Tax

From: Barry Ward & Jeff Lewis, OSU Income Tax Schools

Are you a farmer or farmland owner wanting to learn more about the recent income tax law changes and proposals? If so, join us for this webinar on Thursday, November 17th, 2022, from 6:30 - 8:30 p.m.

Register for just $40. If you can't attend, you will be sent a link to view the recorded webinar later at your convenience. You have unlimited views of the replay, and it will be available throughout the 2022 tax filing season. Details and registration link can be found at: https://farmoffice.osu.edu/tax/farmer-and-farmland-owner-income-tax-webinar

This webinar will focus on issues related to farmer and farmland owner tax returns. This two-hour program will be presented in a live webinar format via Zoom by OSU Extension Educators Barry Ward, David Marrison and Jeff Lewis along with Purdue faculty member Dr. Michael Langemeier. Individuals who operate farms, own property, or are involved with renting farmland are encouraged to participate.

Topics to be discussed during the webinar include (subject to change based on tax law change):

• Farm Economy and Income in ‘22 and Outlook for ’23 

• Deferring Taxes (deferring income, prepaying expenses), Retirement Plan Contributions, Accelerating Depreciation, Bunching Itemized Deductions, Self-employment Tax Planning, and Maximizing Permanent Tax Benefits
• Depreciation, Bonus Depreciation, Section 179, What is “Placed in Service”? 
• Income Averaging 
• Employee Retention Credits 
• Inflation Reduction Act (IRA) 
• State Tax Updates – Ohio and Indiana 

To register: https://farmoffice.osu.edu/tax/farmer-and-farmland-owner-income-tax-webinar

For more information, contact Barry Ward at ward.8@osu.edu or Jeff Lewis at lewis.1459@osu.edu or call the OSU Extension Farm Office at 614-292-2433.

UPDATE:  Governor DeWine signed H.B. 95, the Beginning Farmer bill, on April 18, 2022.  The effective date for the new law is July 18, 2022.  The Governor signed the Statutory Lease Termination bill, H.B. 397, on April 21, and its effective date is July 21, 2022.

Bills establishing new legal requirements for landowners who want to terminate a verbal or uncertain farm lease and income tax credits for sales of assets to beginning farmers now await Governor DeWine’s response after passing in the Ohio legislature this week.  Predictions are that the Governor will sign both measures.

Statutory termination requirements for farm leases – H.B. 397

Ohio joins nine other states in the Midwest with its enactment of a statutory requirement for terminating a crop lease that doesn’t address termination.  The legislation sponsored by Rep. Brian Stewart (R-Ashville) and Rep. Darrell Kick (R-Loudonville) aims to address uncertainty in farmland leases, providing protections for tenant operators from late terminations by landowners.  It will change how landowners conduct their farmland leasing arrangements, and will hopefull encourage written farmland leases that clearly address how to terminate the leasing arrangement.

The bill states that in either a written or verbal farmland leasing situation where the agreement between the parties does not provide for a termination date or a method for giving notice of termination, a landlord who wants to terminate the lease must do so in writing by September 1.  The termination would be effective either upon completion of harvest or December 31, whichever is earlier.  Note that the bill applies only to leases that involve planting, growing, and harvesting of crops and does not apply to leases for pasture, timber, buildings, or equipment and does not apply to the tenant in a leasing agreement.  A lease that addresses how and when termination of the leasing arrangement may occur would also be unaffected by the new provisions.

The beginning farmer bill – H.B. 95

A long time in the making, H.B. 95 is the result of a bi-partisan effort by Rep. Susan Manchester (R-Waynesfield) and Rep. Mary Lightbody (D-Westerville).  It authorizes two types of tax credits for “certified beginning farmer” situations. The bill caps the tax credits at $10 million, and sunsets credits at the end of the sixth calendar year after they become effective.

The first tax credit is a nonrefundable income tax credit for an individual or business that sells or rents CAUV qualifying farmland, livestock, facilities, buildings or machinery to a “certified beginning farmer.”  A late amendment in the Senate Ways and Means Committee reduced that credit to 3.99% of the sale price or gross rental income.  The bill requires a sale credit to be claimed in the year of the sale but spreads the credit amount for rental and share-rent arrangements over the first three years of the rental agreement.  It also allows a carry-forward of excess credit up to 7 years.  Note that equipment dealers and businesses that sell agricultural assets for profit are not eligible for the tax credit, and that an individual or business must apply to the Ohio Department of Agriculture for tax credit approval.

The second tax credit is a nonrefundable income tax credit for a “certified beginning farmer” for the cost of attending a financial management program.  The program must be certified by the Ohio Department of Agriculture, who must develop standards for program certification in consultation with Ohio State and Central State.  The farmer may carry the tax credit forward for up to three succeeding tax years.

Who is a certified beginning farmer?  The intent of the bill is to encourage asset transition to beginning farmers, and it establishes eligibility criteria for an individual to become “certified” as a beginning farmer by the Ohio Department of Agriculture.  One point of discussion for the bill was whether the beginning farmer credit would be available for family transfers.  Note that the eligibility requirements address this issue by requiring that there cannot be a business relationship between the beginning farmer and the owner of the asset. 

An individual can become certified as a beginning farmer if he or she:

• Intends to farm or has been farming for less than ten years in Ohio.
• Is not a partner, member, shareholder, or trustee with the owner of the agricultural assets the individual will rent or purchase.
• Has a household net worth under $800,000 in 2021 or as adjusted for inflation in future years.
• Provides the majority of day-to-day labor and management of the farm.
• Has adequate knowledge or farming experience in the type of farming involved.
• Submits projected earnings statements and demonstrates a profit potential.
• Demonstrates that farming will be a significant source of income.
• Participates in a financial management program approved by the Department of Agriculture.
• Meets any other requirements the Ohio Department of Agriculture establishes through rulemaking.

We’ll provide further details about these new laws as they become effective.   Information on the statutory termination bill, H.B. 397, is here and information about the beginning farmer bill, H.B. 95, is here.  Note that provisions affecting other unrelated areas of law were added to both bills in the approval process.

Did you know that the loudest land animal is the howler monkey?  The howler monkey can produce sounds that reach 140 decibels.  For reference, that is about as loud as a jet engine at take-off, which can rupture your eardrums.  

Like the howler monkey, we are here to make some noise about recent agricultural and resource law updates from across the country.  This edition of the Ag Law Harvest brings you court cases dealing with zoning ordinances, food labeling issues, and even the criminal prosecution of a dairy farm.  We then look at a couple states proposing, or disposing, of legislation related to agriculture.  

A zoning ordinance has Michigan landowners hogtied.  The Michigan Supreme Court recently ruled that Michigan’s 6-year statute of limitations does not prevent a township from suing a landowner for alleged ongoing zoning violations, even if the start of landowner’s alleged wrongdoing occurred outside the statute of limitations period.  

Harvey and Ruth Ann Haney (“Defendants”) own property in a Michigan township that is zoned for commercial use.  Defendants began raising hogs on their property in 2006.  Defendants started with one hog and allegedly grew their herd to about 20 hogs in 2016.  In 2016, Fraser Township (“Plaintiff”) filed suit against Defendants seeking a permanent injunction to enforce its zoning ordinance and to prevent Defendants from raising hogs and other animals that would violate the zoning ordinance on their commercially zoned property.  Defendants filed a motion to dismiss and argued that Plaintiff’s claims were barred because of Michigan’s 6-year statute of limitations.  A statute of limitations is a law that prevents certain lawsuits from being filed against individuals after a certain amount of time has passed.  In Ohio, for example, if someone were to be injured in a car accident, they would only have 2 years to bring a personal injury claim against the person who caused the accident.  That’s because Ohio has passed a law that mandates most personal injury claims to be brought within 2 years of the date of injury.  

In the Michigan case, Defendants argued that because their first alleged wrongdoing occurred in 2006, Plaintiff could not file their lawsuit against the Defendants in 2016.  A trial court disagreed with Defendants and denied their motion to dismiss.  Defendants took the motion up to the Michigan Court of Appeals, and the Court of Appeals found that Plaintiff’s claim was barred because of the 6-year statute of limitations.  Plaintiff appealed to the Michigan Supreme Court, which overturned the Court of Appeals’ decision and held that Plaintiff’s claim was not barred.  The Michigan Supreme Court reasoned that the presence of the hogs constitutes the alleged unlawful conduct of the Defendants, and that unlawful conduct occurred in 2006 and has occurred almost every day thereafter.  The court concluded that because Defendants unlawful conduct was ongoing after 2006, Plaintiff’s claims were not barred by the statute of limitations.  The case now goes back to the trial court to be tried on the merits of Plaintiff’s claims against Defendants. 

Where there’s smoke, there’s fire.  Family Dollar Stores, Inc. (“Family Dollar”) has found itself in a bit of nutty situation.  Plaintiff, Heather Rudy, has filed a class action lawsuit against Family Dollar, alleging that Family Dollar has misled her and other consumers by marketing its Eatz brand Smoked Almonds as “smoked.”  Plaintiff asserts that Family Dollar is being deceptive because its Smoked Almonds are not smoked over an open fire, but instead flavored with a natural smoke flavoring.  Plaintiff’s claims against Family Dollar include violating the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”); breaches of express warranty and implied warranty of merchantability; violation of the Magnuson-Moss Warranty Act; negligent misrepresentation; fraud; and unjust enrichment.  

Family Dollar filed an early motion to dismiss, arguing that Plaintiff has not stated a claim for which relief can be granted.  A federal district court in Illinois dismissed some of Plaintiff’s claims but ruled that some claims against Family Dollar should be allowed to continue.  Plaintiff’s claims for breaches of warranty, violation of the Magnuson-Moss Warranty Act, negligent misrepresentation, and fraud were all dismissed by the court.  The court did decide that Plaintiff’s claims under ICFA unjust enrichment should stay.  The court reasoned that Plaintiff’s interpretation that Family Dollar’s almonds would be smoked over an open fire are not unreasonable.  Moreover, the court recognized that nothing on the front label of Family Dollar’s Smoked Almonds would suggest, to consumers, that the term “smoked” refers to a flavoring rather than the process by which the almonds are produced.  The court even pointed out that competitors’ products contain the word “flavored” on the front of similar “smoked” products.  Therefore, the court concluded that Plaintiff’s interpretation of Family Dollar’s Smoked Almonds was not irrational and her claims for violating the ICFA should continue into the discovery phase of litigation, and possibly to trial.  

Undercover investigation leads to criminal prosecution of Pennsylvania dairy farm.  A Pennsylvania Court of Appeals (“Court of Appeals”) recently decided on Animal Outlook’s (“AO”) appeal from a Pennsylvania trial court’s order dismissing AO’s petition to review the decision of the Franklin County District Attorney’s Office (“DA”) to not prosecute a Pennsylvania dairy farm (the “Dairy Farm”) for animal cruelty and neglect.  An undercover agent for AO held employment at the Dairy Farm and captured video of the condition and treatment of animals on the farm, which AO claims constitutes criminal activity under Pennsylvania’s animal cruelty laws.  

AO compiled a report containing evidence and expert reports documenting the Dairy Farm’s alleged animal cruelty and neglect.  AO submitted its report to the Pennsylvania State Police (“PSP”) in 2019.  The PSP conducted its own investigation which lasted for over a year, and in March 2020, issued a press release indicating that the DA would not prosecute the Dairy Farm.  

In response, AO drafted private criminal complaints against the Dairy Farm and submitted those to the local Magisterial District Judge.  The local Magisterial Judge disapproved all of AO’s complaints and concluded that the complaints “lacked merit.”  AO then filed a petition in a Pennsylvania trial court to review the Magisterial Judge’s decision.  The trial court dismissed AO’s petition and concluded that the DA correctly determined “that there was not enough evidence, based upon the law, to initiate prosecution against any of the Defendants alleged in the private criminal complaints.”  AO appealed the trial court’s decision to the Court of Appeals which ended up reversing the trial court’s decision.    

The Court of Appeals concluded that the trial court failed to view the presented evidence through a lens that is favorable to moving forward with prosecution and the trial court failed to consider all reasonable inferences that could be made on the evidence.  The Court of Appeals observed that the trial court made credibility determinations of the evidence by favoring the evidence gathered by PSP over the evidence presented by AO.  The Court of Appeals noted that a trial court’s duty is to determine “whether there was evidence proffered to satisfy each element of an offense, not to make credibility determinations and conduct fact-finding.” Additionally, the Court of Appeals found that the trial court did not do a complete review of all the evidence and favored the evidenced obtained by PSP over the evidence presented by AO.  The Court of Appeals determined that had the trial court reviewed all the evidence, it would have found that AO provided sufficient evidence to establish prima facie cases of neglect and animal cruelty, which would have provided the legal basis for the DA’s office to prosecute the claims.  

Lastly, the DA argued that no legal basis for prosecution exists because the Dairy Farm is protected by the normal agricultural operations exemption to Pennsylvania’s animal cruelty laws.  However, the Court of Appeals found that the conduct of the Dairy Farm, as alleged, would fall outside the normal agricultural operations exemption because AO’s report demonstrates that the Dairy Farm’s practices were not the dairy industry norm.    

Ultimately the Court of Appeals found that AO’s private criminal complaints did have merit and that the DA had enough evidence and a legal basis to prosecute AO's claims.  The Court of Appeals remanded the trial court’s decision and ordered that the DA to go ahead and prosecute the Dairy Farm on its alleged animal cruelty violations.  

Wyoming fails to pass legislation limiting what can be considered agricultural land.  The Wyoming House of Representatives struck down a recent piece of legislation looking to increase the threshold requirement to allow landowners the ability to classify their land as agricultural, have their land appraised at an agricultural value, and receive the lower tax rate for agricultural land.  Current Wyoming law classifies land as agricultural if: (1) the land is currently being used for an agricultural purpose; (2) the land is not part of a patted subdivision; and (3) the owner of the land derived annual gross revenue of $500 or more from the marketing of agricultural products, or if the land is leased, the lessee derived annual gross revenues of $1,000 or more from the marketing of agricultural products.  

Wyoming House Bill 23 sought to increase the threshold amount of gross revenues derived from the marketing of agricultural products to $5,000 for all producers.  The Wyoming Farm Bureau Federation and Wyoming Stock Growers associations supported the bill.  Proponents of the bill argued that the intent of agricultural land appraisals is to support commercial agriculture, not wealthy landowners taking advantage of Wyoming’s tax laws.  Opponents of the bill argued that House Bill 23 hurt small agricultural landowners and that the benefits of the bill did not outweigh the harms.  House Bill 23 died with a vote of 34-25, failing to reach the 2/3 approval for bills to advance.  

Oregon introduces legislation relating to overtime for agricultural workers.  Oregon House Bill 4002 proposes to require agricultural employers to pay all agricultural employees an overtime wage for time worked over 40-hours in a workweek.  House Bill 4002 does propose a gradual phase-in of the overtime pay requirements for agricultural employees.  For the years 2023 and 2024, agricultural employees would be entitled to overtime pay for any time worked over 55 hours in a workweek.  For 2025 and 2026, the overtime pay requirement kicks in after 48 hours.  Then in 2027, and beyond, agricultural employers would be required to pay an overtime pay rate to employees that work more than 40 hours in a workweek.   

Ohio Employer Withholding Tax.  Generally, employers are required to withhold Ohio income tax and school district tax from employees’ wages.  However, under Ohio law, Agricultural employers are not required to withhold Ohio taxes from wages paid to employees, so long as the employees fall under the definition of agricultural labor in 26 U.S.C. § 3121(g).  “Agricultural labor” includes all services performed:

• on a farm, in the employ of any person, in connection with the cultivating, raising, and/or harvesting of any agricultural or horticultural commodity; or
• in the employ of the owner or other operator of a farm, in connection with the operation, management, conservation, or maintenance of such farm and its tools and equipment. 

Can Ohio’s Agricultural Employers Agree to Willingly Withhold Ohio’s Taxes?  In short, the answer is yes.  An agricultural employee must still pay Ohio income tax and their local school district tax on all income earned throughout the year.  If an employee does not have their Ohio taxes withheld from their pay, they may be required to make quarterly estimated tax payments to the state.  Because of this, an employee may request their employer to withhold their Ohio taxes from each paycheck.  An agricultural employer is under no obligation to withhold Ohio taxes, but some do.    

Ohio Withholding Exemption Certificate.  It is important that each employer, even an agricultural employer, have its employees complete an Employee’s Withholding Exemption Certificate (Ohio IT 4).  For agricultural employers that are not going to withhold Ohio’s taxes, it must have each employee check the box next to “I am exempt from Ohio withholding under R.C. 5747.06(A)(1) through (6)” under Section III of Form IT 4.  If no Ohio IT 4 is completed, then an employer must withhold the Ohio’s taxes from an employee’s wages.  

Ohio requires an employer to keep Ohio IT 4 in its records for at least four years and must make it available to the Ohio Department of Taxation upon request. 

Registering as an Ohio Withholding Agent.  Employers that are required (or choose) to withhold Ohio’s taxes from employees’ wages must register with the Ohio Department of Taxation. This can be done one of three ways. 

1. By internet.  Registration can be completed online through the Ohio Business Gateway. 
2. By phone. Call 1-888-405-4089, listen for the message, and then press 2 to connect with an agent. 
3. By mail or fax.  Complete Application for Registration as an Ohio Withholding Agent (Ohio IT 1) and mail it to the address provided on the form or fax it to the Ohio Department of Taxation at (614) 387-2165. 

How Much Ohio Income Tax Should an Employer Withhold?  To determine how much Ohio income tax to withhold, visit the Ohio Department of Taxation’s Employer Withholding Tables website. 

How Much School District Tax Should an Employer Withhold?  School districts impose a tax using one of two methods: traditional or earned income.  School district tax rates and a district’s method of taxation can be found on the Ohio Department of Taxation’s "Employer Withholding: Table of Contents" website.  

For traditional tax base school districts, an employer must use the same wage base and number of exemptions they use when calculating the employee’s Ohio income tax rate.  For earned income tax base school districts, an employer must withhold at a flat rate equal to the school district’s tax rate with no reduction or adjustment for personal exemptions. 

An employee’s school district is determined by the address of the employee’s residence.  School districts and the corresponding four-digit codes can be found at https://www.tax.ohio.gov/finder or by contacting the applicable county auditor. 

Electronic Filing Requirement.  Employers are required to file and pay Ohio income and school district withholding taxes electronically.  The easiest way to do this is through the Ohio Business Gateway.  

Filing Frequency and Payment of Ohio’s Employer Withholding Tax.  An employer’s filing frequency is determined by the combined amount of Ohio and school district income taxes that were withheld or required to be withheld during the look-back period.  Ohio’s look-back period is the 12-month period ending June 30^th of the preceding calendar year.  An employer’s filing frequency is re-evaluated every year.  

Ohio’s Income Tax Filing Frequency: 

Quarterly.  Ohio employers that withheld $2,000 or less in Ohio taxes will be required to file and pay taxes every calendar quarter.  Ohio’s form IT 501 and payment are due by the last day of the month following each calendar quarter.  

Monthly.  Ohio employers that withheld more than $2,000 but less than $84,000 in Ohio taxes will be required to file and pay taxes every month.  Form IT 501 and payment are due within 15 days after the end of each month.  

Partial-weekly.  Ohio employers that withheld $84,000 or more in Ohio taxes are required to make payment of withheld taxes within three banking days from the end of each “partial-weekly period.”  There is no form that is required to be filed each time tax payments are filed.  There are two “partial-weekly periods” in which an employer can be categorized.  An employer’s partial weekly period depends on the day it issues payroll.   

Partial-weekly Period 1:  An employer is in period 1 if it issues payroll on Saturday, Sunday, Monday, or Tuesday. 

Partial-weekly Period 2:  An employer is in period 2 if it issues payroll on Wednesday, Thursday, or Friday.

Remember, payment is due within three banking days from the end of each period.  So, if an employer issues payroll on Wednesday, it must submit payment of Ohio taxes within three banking days starting on Friday. 

School District Tax Filing Frequency.  School district tax filing frequency is the same as an employer’s Ohio income tax filing frequency except for employers that qualify as partial-weekly filers.  Partial-weekly employers are required to file school district tax on a monthly basis.  Every time an employer files and remits the school district tax they must complete “Payment of School District Income Tax Withheld” (Ohio SD 101), which can be found on the Ohio Business Gateway.  

Quarterly and Annual Forms.  An employer’s filing obligations do not end by filing the above forms each time it remits payment of Ohio’s taxes.  The following are additional forms that must be completed by an employer either on a quarterly or yearly basis.  Not every form listed below needs to be completed by every employer.  Certain forms correspond with an employer’s filing frequency classification.  These forms can be found on the Ohio Business Gateway.  

Quarterly/Monthly Filers.  Employers that qualify to file and pay Ohio income taxe on a quarterly or monthly basis must file an “Annual Reconciliation of Income Tax Withheld” (Ohio IT 941).  Ohio IT 941 is typically due no later than January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).  The total tax withheld on Ohio IT 941 must equal the amount reported on Ohio IT 3 (discussed below).  

Partial-weekly Filers.  Employers that must pay Ohio taxes on a partial-weekly basis must file a “Quarterly Reconciliation of Income Tax Withheld” (Ohio IT 942) by the last day of each month following a calendar quarter for the 1st, 2nd, and 3rd Quarters.  A different Ohio IT 942 form titled “4th Quarter/Annual Reconciliation of Income Tax Withheld” is to be filed by partial-weekly employers by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).  Partial-weekly employers do not submit Ohio IT 941.  

“Transmittal of W-2 and 1099-R Statements” (Ohio IT 3).  All employers must submit Ohio IT 3, which can be done electronically on the Ohio Business Gateway.  Ohio IT 3 requires an employer to report and upload employee W-2s/1099-Rs.  The amount of Ohio taxes withheld and paid by an employer must match the information contained within the W-2s and 1099-Rs.  Ohio IT 3 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).

“Annual Reconciliation of School District Income Tax Withheld” (Ohio SD 141). Employers must also submit Ohio SD 141, which can be done electronically on the Ohio Business Gateway.  Ohio SD 141 compares the amount of school district tax withheld and paid by an employer and the information contained within the W-2s and 1099-Rs uploaded when an employer files Ohio IT 3 (see above).  The amount of school district tax withheld and paid should match the information contained within the W-2s and 1099-Rs submitted by an employer.  Ohio SD 141 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).

When are Agricultural Employers required to pay Ohio’s Unemployment Insurance? Agricultural employers must pay the Ohio Unemployment insurance tax if it: 

• Paid cash wages of $20,000 or more in a calendar to agricultural employees in the current calendar year or the preceding calendar year; or 
• Had at least 10 agricultural employees for some portion of a day in 20 different weeks in the current year or the preceding year

Other Ways Employers can Become Liable for Ohio’s Unemployment Insurance Tax.  An employer can also be required to pay the Ohio Unemployment Insurance tax if it:

1. Is subject to the Federal Unemployment Tax Act (“FUTA”) in either the current calendar year or preceding calendar year.  
2. Acquires a business that was subject to Ohio’s unemployment insurance tax. 
3. Elects to cover its employees voluntarily. 

Employer Must Report Its Own Liability.  Employers are required to report liability by filing “Report to Determine Liability” (JFS 20100) to the Ohio Department of Job and Family Services (the “ODJFS”), which can be done online at https://thesource.jfs.ohio.gov.   The ODJFS will determine an employer’s liability based on the information provided in JFS 20100.  If an employer is deemed to be liable for Ohio Unemployment Insurance, the ODJFS will issue a 10-digit employer account number.  

Employer Reporting.  Liable employers are required to file quarterly reports to the ODJFS.  Agricultural employers that must pay into the Ohio unemployment insurance fund must file the “Employer’s Wage Detail Report” and the “Quarterly Summary Report.” Employers who had no workers or paid no wages during a quarter are still required to file the above-mentioned reports.  Employers with fewer than 200 employees should file their quarterly reports by using the Ohio Business Gateway or ODJFS’s “The SOURCE Online”  The reports must be filed no later than the last day of the month following the end of a calendar quarter.  

Employer Contributions.  Like FUTA, only the employer is responsible for Ohio’s unemployment insurance tax. Payments made into the Unemployment Insurance Trust Fund are called “contributions.”  Contribution rates are determined by an employer’s “experience rating” which is a measure of how much an employer has paid in unemployment taxes and has been charged in benefits.  For more information about contribution rates, visit https://jfs.ohio.gov/ouio/uctax/rates.stm.

Contributions are due no later than the last day of the month following the end of a calendar quarter.  To determine how much tax is due each quarter, an employer multiplies its unemployment tax rate by the amount of taxable wages paid during the quarter.  Contributions must be made each quarter until the “taxable wage base” for each employee has been met.  The taxable wage base for 2022 is $9,000.  This means that an employer is only required to pay its unemployment insurance tax rate on the first $9,000 dollars earned by each employee.  If an employer is unable to make a contribution, the unpaid balance will bear an annual interest rate of 14%, compounded monthly.  

While not technically a “tax,” every employer in the state of Ohio, with one or more employees, must have workers’ compensation coverage.  This includes agricultural employers.  There are, however, certain businesses that do not have to carry workers compensation coverage.  These businesses include: 

• Sole proprietors with no employees
• Partnerships with no employees
• Family farm corporations with no employees
• Limited liability company acting as a sole proprietorship with no employees
• Limited liability company acting as a partnership with no employees

As you can see, the common attribute shared by the exempt businesses listed above is the fact that those businesses have no employees.  What this means is that if anyone, other than an owner, is performing services for a business and being paid for those services, then the business is required to carry workers’ compensation coverage.  So, for example, if a couple owns and operates a small family farm corporation and only the couple performs the work on the farm, then workers’ compensation coverage is not required.  

Elective Workers’ Compensation Coverage.  For those employers that are not required to carry workers’ compensation coverage, they may still elect to do so.  Oftentimes, businesses elect to carry workers’ compensation insurance to prevent the devastating side effects of a serious injury sustained by an owner.  Using the example of the family farm corporation from above, if the couple decides not to carry workers’ compensation coverage and one of them is injured while farming, their health insurance company may deny their claim because the injury was work-related.  Generally, on-the-job injuries must be covered through workers’ compensation, not an individual’s health insurance.  So, the couple could begin to amass a large sum in medical bills due to the lack of insurance coverage, possibly bankrupting the farm corporation.    

Applying for Workers’ Compensation Coverage.  Employers required to carry workers’ compensation coverage must apply for coverage by submitting the “Application for Coverage (U-3)” to Ohio’s Bureau of Workers’ Compensation (“BWC”) which can be found at https://www.bwc.ohio.gov/employercoverage.  Employers electing to obtain coverage can apply by submitting the “Application for or Request to Cancel Elective Coverage (U-3S)” which can be found by visiting https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/employer-forms/application-for-request-cancel-elective-coverage.

Workers’ Compensation Premiums.  The BWC calculates an employer’s premium based on several factors, including total payroll, type of work performed by employees, and an employer’s workplace injury record.  

Premium Payments.  Installment payments of an employer’s premium is based upon a schedule chosen by the employer.  The BWC will send an invoice to each employer for premium/installment payments.  Payments can be made through an e-account on the Ohio Bureau of Workers’ Compensation website. 

Alternative Premium Rate Plans.  It's no secret that workers' compensation insurance can be a costly expense for an employer.  However, the BWC does have alternative premium rate plans for employers looking to reduce the cost of workers' compensation insurance.  These alternative rate plans allow employers that operate similar businesses to join together to potentially achieve a lower premium rate than they could obtain as individual employers.  For more information on alternative premium rate plans visit https://www.bwc.ohio.gov/downloads/blankpdf/altrate.pdf.  

Conclusion.  This series was split into two posts because of the massive amount of information presented.  However, the broad overview of this series was very surface level.  There are many exemptions, exceptions, alternate requirements, or additional requirements based on an employer’s unique circumstances that we did not cover for the sake of brevity.  That is why is it important to speak with an attorney or other tax professional so that they can help you navigate federal and state tax laws to make sure you are fulfilling your obligations as an employer and to address any questions or concerns that you may have.  

References and Resources: 

Ohio Administrative Code Chapter 4123, Bureau of Workers’ Compensation, https://codes.ohio.gov/ohio-administrative-code/4123

Ohio Bureau of Workers’ Compensation, BWC Basics for Employers, https://www.bwc.ohio.gov/downloads/blankpdf/BWCBASICS.pdf

Ohio Bureau of Workers’ Compensation, Workers’ Compensation Overview, https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/workers-compensation-overview

Ohio Department of Job and Family Services, Employer’s Guide to Ohio Unemployment Insurance,http://www.odjfs.state.oh.us/forms/num/JFS08201/pdf/  

Ohio Department of Job and Family Services, Unemployment Insurance: Employer Resource Hub, https://unemploymenthelp.ohio.gov/employer/

Ohio Department of Job and Family Services, UI Tax for New Employers, https://jfs.ohio.gov/ouio/uctax/UITaxForNewEmployers.stm

Ohio Department of Taxation, 2022 Ohio Employer and School District Withholding Tax Filing Guidelines,https://tax.ohio.gov/static/employer_withholding/2021%20filing%20guidelines%20updates_rev%2012-22-21.pdf

Ohio Department of Taxation, Estimated Payments, https://tax.ohio.gov/wps/portal/gov/tax/individual/resources/estimated-payments

Ohio Revised Code Chapter 4141, Unemployment Compensation, https://codes.ohio.gov/ohio-revised-code/chapter-4141

Ohio Revised Code Chapter 4123, Workers’ Compensation, https://codes.ohio.gov/ohio-revised-code/chapter-4123

Ohio Revised Code Chapter 5747, Income Tax, https://codes.ohio.gov/ohio-revised-code/chapter-5747

Ohio Revised Code Chapter 5748, School District Income Tax, https://codes.ohio.gov/ohio-revised-code/chapter-5748