2020 has been an unusual year to say the least. The pandemic has created economic, social, and health challenges that would have been impossible to predict back in January. To prevent widespread virus transmission, Illinois Governor Pritzker issued both forced business closures and stay at home orders impacting businesses across Illinois. Although beneficial to public health, the orders changed the business landscape overnight forcing management to make tough decisions about expenses, employees, and working capital needs. In other words, the pandemic opened the door to new scenarios and challenges previously not considered. This includes many businesses that have transitioned to employees working remotely. Although practical to prevent virus transmission, it raises important tax concerns when a non-Illinois based business has employees working remotely in Chicago, or, another part of Illinois. As a result, these employers not normally subject to Illinois income tax withholding for employees may now be so. To help clients, prospects, and others, Selden Fox has provided a summary of the key information below.
Illinois COVID-19 Withholding Guidance
Back in May, the Illinois Department of Revenue (IDOR) issued FY 2020-29 which provides withholding income tax guidance for out of state employers. It states that employee compensation is subject to Illinois Income Tax Withholding when an employee has performed normal work duties in the state for more than 30 working days. If an Illinois resident has completed more than 30 working days from their Illinois home for an out of state employer, then the employer may be required to withhold Illinois income tax. There are two exceptions to this rule which include:
- Employers in states that have a reciprocal agreement with Illinois (Iowa, Kentucky, Michigan, and Wisconsin) do not need to make any changes.
- Employers that are currently registered as a withholding agent in Illinois can continue to withhold Illinois taxes.
Note that the typical withholding amount is 4.95%. For those employers that will need to collect income tax withholding, they must register with IDOR. This can be done by applying online through MyTax Illinois or by completing and submitting Form REG-1, Illinois Business Registration Application.
Failure to Comply Penalties
IDOR has stated they will waive penalties and interest for qualifying employers who fail to withhold income taxes for Illinois employees if the sole reason for the filing obligation is the employee is working from home as a result of COVID-19. However, it is encouraged for employers to register and start withholding taxes to minimize the potential for future issues.
Employee Filing Option
Employees that do not have Illinois income tax withheld by an employer may be required to pay money to the state and be subject to estimated payment requirements. Estimated payments are required if an employee reasonably expects their tax liability to exceed $1,000 after various withholdings and tax credits.
Contact Us
Given all the challenges presented by the pandemic, tax withholding may not be at the top of the list. However, it is important to determine whether your business is subject to Illinois withholding to ensure you are in compliance with tax requirements. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Selden Fox can help. For additional information call us at 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
