Lawsuit claiming widespread double-taxation of Ohioans heads to settlement through mediation

AKRON, Ohio — A lawsuit filed earlier this month alleging that the Ohio Department of Taxation is illegally taxing some Ohio taxpayers twice will attempted to be settled in mediation, the Ohio Supreme Court and Community Legal Aid announced Wednesday.

Community Legal Aid’s clients, Ohio Tax Commissioner Jeff McClain and Ohio Treasurer Robert Sprague have agreed to attempt to find resolution to this case with an impartial mediator through the court, according to a news release from Communtiy Legal Aid, a non-profit law firm that serves the needs of low-income individuals.

"We're thrilled to take this next step in resolving this issue," said the organization's Advocacy Director. "Our clients just want to be made whole. This is a great chance to make that happen."

The lawsuit alleges some taxpayers have been illegally double-taxed, "allowing the state of Ohio to profit unjustly at the expense of individual taxpayers."

The situation arises when a taxpayer is unable to provide W-2 information on their state tax return because an employer fails to generate or provide a W-2, or the document is lost or destroyed, said Community Legal Aid Attorney Dana Goldstein, who filed the original action.

When an employee taxpayer is unable to provide the W-2 information, the state of Ohio has the employee enter "0" as the amount of state income taxes withheld by the employer, even though the employer withheld taxes from the employee and remitted those funds directly to the state, Goldstein said.

Goldstein claims Ohio then processes the return as if the employee had paid no state income tax and doesn't give the taxpayer credit for funds received from the employer on the employee's behalf, and therefore an employee is taxed a second time.

Community Legal Aid estimated that tens of thousands of Ohio taxpayers could be owed millions of dollars by the state because of this practice.

RELATED: Lawsuit claims widespread double taxation against Ohioans

The lawsuit sought not only to recover those tax dollars for the firm’s clients but also to find a long-term solution for what the organization calls a systemic problem that disproportionately impacts low-income Ohioans. The original lawsuit asked McClain’s and Sprague’s offices to formally adopt policies that prevent double taxation, and, Community Legal Aid says, don’t violate state law.

"Of course, we want our clients to get the money they're owed, but we want this to stop happening and keep any future taxpayers from being harmed," Goldstein said. "We don't just want to fix this problem for our clients. We want to keep it from happening again."

Due to the nature of the mediation process, all discussions between the parties involved will be confidential and kept closed to the public. But Community Legal Aid’s Rachel Nader called it a "step in the right direction."

View the Supreme Court of Ohio filing regarding the mediation settlement action here.

News 5 is reaching out to the Ohio Department of Taxation and the Ohio Treasurer's Office for comment.

Download the News 5 Cleveland app now for more stories from us, plus alerts on major news, the latest weather forecast, traffic information and much more. Download now on your Apple device here, and your Android device here.

You can also catch News 5 Cleveland on Roku, Apple TV, Amazon Fire TV, YouTube TV, DIRECTV NOW, Hulu Live and more. We're also on Amazon Alexa devices. Learn more about our streaming options here.