What Are Illinois’ New Income Tax Withholding Rules?

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  • Contributors:
Cityscape of downtown Chicago, Illinois

Do you have any employees who work in Illinois? Do you know when to withhold income tax from your employees? If not, now is a good time to find out. Why? Illinois recently passed new rules for withholding personal income tax from employees.

The new rules go into effect in January 2020. Here’s what employers need to know.

What are the new withholding rules?

As an employer, you should withhold income tax if an employee meets all of the following requirements:

  • an employee performs some services for the employer in Illinois
  • the employee performs services in Illinois for more than 30 working days during the tax year
  • the services aren’t incidental to services they perform outside the states

Again, you should withhold tax from the compensation you pay to nonresident employees who meet all of these requirements.

 

What’s the definition of a working day?

A working day is a day where employees perform duties for their employers. Weekends, vacation days, sick days, and holidays aren’t working days. What if an employee is traveling? Working in multiple locations in a single day?

If your employee is traveling and arrives in Illinois, their arrival date is considered a working day. If an employee works in Indiana and Illinois in a single day, it’s a working day if they spend more time working in Illinois.

 

Illinois’ new income tax withholding rules go into effect Jan. 1, 2020.

 

What should I do as an employer?

Review your workforce. Do you have employees who work solely in Illinois? Any employees who spend a few working days in Illinois? How well are you able to track the work locations of your employees?

It may be helpful to implement a time and attendance system to ease the burden of tracking and payroll processing.

If you do have employees in Illinois, you’ll need to register with Illinois’ Department of Revenue to withhold income tax, unless that employee can claim reciprocity and you have documentation to support the claim.

You must withhold 4.95% of net income from your employee’s compensation based on the number of allowances they claim. If you’re required to withhold and pay tax to Illinois and don’t, the state can impose penalties and interest.

 

If you need help determining whether to withhold tax and/or filing a registration with the state of Illinois, we’re here to help.