Case Study | 13,000 Reasons To Always Ask Questions

Municipal Tax Mistake Fixed, Positive Outcome Secured

Municipal Tax Case Study | Ohio CPA Firm
Few things get an accountant as excited as being presented with an opportunity to save money, find money or investigate the whereabouts of money on behalf of our clients. Read on to learn why this particular case got our state and local tax pros excited to do a little investigating.

These days, it’s not unusual to travel (sometimes great distances) for your career. It’s also becoming more and more common for professionals to utilize their home offices as their primary work spaces. But whether you’re enduring long commutes each day, telecommuting from home or hopping a plane across country a few times each month, be sure to review your W-2s to determine whether the municipal taxes that are withheld from your paycheck are correct. You may be surprised to learn how easy it can be to overlook this particular line item.

Read Also: Tax Reform And You

Backstory

A husband-and-wife team turned to Rea & Associates for tax assistance several years ago after leaving a local firm. She works as an attorney and he has built his career as a dentist. After talking to the duo and learning a little bit more about them, we found out that, due to the demands of the job, she not only travels across the country a lot; but when she finds herself back in Ohio, she’s serving clients from her home office located in a township just outside of Cleveland. Their story is not uncommon. It wasn’t until we took a closer look at the wife’s W-2 that we began to question the numbers.

The Problem

Even though the wife either worked from home or traveled to various cities across the country as an attorney, her W-2 showed that the City of Cleveland withheld taxes on the entirety of her wages.

That didn’t make sense to us.

Naturally, we had to ask … of the nearly $200,000 reported on her W-2, how much work was actually conducted in/from Cleveland? Her answer was a resounding “zero.”

When asked why Cleveland was withholding tax on her wages, she ventured to guess that it was because the CPA firm she worked at was headquartered in Cleveland. And because she worked at the Big Four firm, she never thought to question the issue.

The Bet

If we were correct and our client, indeed, did not owe the municipal tax that was withheld by the City of Cleveland, we could request that the tax payments made over the last three years be refunded to our client. The refund could be substantial.

The Solution

Few things get an accountant as excited as being presented with an opportunity to save money, find money or investigate the whereabouts of money on behalf of our clients. We were ready to go. The first step in this process was to speak with our client’s employer to verify that she, indeed, did not conduct work in Cleveland. Next, we needed to submit an application, signed by our client’s employer, to the City of Cleveland to clarify the situation. The ball was now in their court. (Go Cavs!)

The Win

Even though we were confident that our client was not required to pay municipal taxes to Cleveland, and we put forth a solid argument to reinforce our stance, our client remained skeptical. It wasn’t until nearly four months had passed and she received a refund check for $13,000 in the mail that she was convinced.

The case was closed and our client came out on top. The amount she received accounted for three years’ worth of taxes that were mistakenly paid to Cleveland.

The Lesson

Getting to know my clients is one of the best things about my job and it’s one of the ways our firm is different from the competition. The business owners and professionals we work with every day aren’t just dollar signs to us. They are real people with real stories facing real challenges and I’ve found that when you truly take an interest in the person, you uncover more opportunities to help that person succeed. The scenario explained above is just another example of that. If I hadn’t taken an interest in the wife’s career, I never would have uncovered this valuable opportunity.

Additionally, there is a very practical lesson to be learned in this case study. Always review the municipal tax withholding on your W-2 to ensure that the city collecting your tax dollars is the same city in which you work all year long. If it not, then give a state and local tax specialist a call to find out if you should be digging a little deeper.

Email the state and local tax team at Rea & Associates to learn more about municipal tax concerns or to determine whether you might have paid too much.

By Kathy LaMonica (Cleveland office)

Looking for more tax insight and tips, check out these articles:

Local Taxes Apply To All Taxable Income

Ohio’s Tax Conformity Bill Retroactively Adopts TCJA Provisions

Failure To File