Current through Register Vol. 48, No. 38, September 20, 2024
a) Beginning with tax years ending on or
after December 31, 1986 and prior to December 31, 2003, a taxpayer shall be
allowed a credit against the tax imposed by IITA Sections 201(a) and (b) for
all amounts paid or accrued, on behalf of all persons employed by the taxpayer
in Illinois, or Illinois residents employed outside of Illinois by a taxpayer,
for educational or vocational training in semi-technical or technical fields or
semi-skilled or skilled fields, which were deducted from gross income in the
computation of taxable income (IITA Section 201(j)).
b) The credit against the tax imposed by IITA
Sections 201(a) and (b) shall be 1.6 % of eligible training expenses (IITA
Section 201(j)).
c) All amounts
paid for educational or vocational training in semi-technical or technical
fields or semi-skilled or skilled fields are eligible for the credit. No
particular fields of employment are presumptively eligible or ineligible for
the credit.
1) The Training Expense Credit
was originally enacted into law as a training expense deduction by P.A. 83-650,
the Prairie State 2000 Authority Act, and was later converted into the current
Training Expense Credit by P.A. 84-1405. The Illinois General Assembly found
that there existed a large surplus of workers throughout the State who are
ready, willing and able to work but who lack the appropriate skills to perform
the specialized tasks for modern business and industry....The General Assembly
found that a substantial impediment to attracting new businesses and
encouraging the modernization of existing businesses has been the shortage of
workers who can perform the specialized tasks required by the new technologies
of modern business. [20 ILCS 4020/2
]
2) The credit is for the amounts
paid or accrued for educational or vocational training in semi-technical or
technical or semi-skilled or skilled fields.
A) The terms "semi-technical or technical
fields or semi-skilled or skilled fields" do not refer to any particular
occupation. This statutory language authorizes the credit for the costs of
training of an employee to improve that employee's job skills within the scope
of his or her employment.
B) The
credit will be authorized for the costs of job-linked training that offers
special skills for career advancement or that is preparatory for, and leads to,
a job with definite career potential.
C) The credit will be authorized for amounts
expended for training necessary to implement Total Quality Management or
improvement systems within the workplace.
D) The credit will be authorized for training
related to machinery or equipment.
E) The credit will be authorized for
job-linked basic skills, which may include English as a second language and
remedial training, necessary for employees to function effectively and safely
in the workplace, or as a prerequisite for other training.
EXAMPLES: Training of a machine operator in skills necessary
to operate a computer-assisted manufacturing machine would qualify for the
credit. Training of the employees of a retailer in the operation of a cash
register system that is designed to aid the retailer by resulting in faster
sales and greater inventory control because of centralized linkage of the
system to the retailer's headquarters would, assuming all other requirements
are met, qualify for the credit. A course in how to supervise employees
required of supervisors because of the installation of a computer system at the
business with terminals in the homes of that supervisor's subordinates that
allows those subordinates to work from their homes would qualify for the
credit.
F) Training does
not have to occur in a classroom. Training may be given by an employer to his
or her employees, an employer may contract with a third party to provide the
training, or an employer may reimburse an employee for the costs of training
purchased by an employee. Eligible training may include self-study courses.
Self-study courses will qualify if the employer demonstrates that the
self-study coursework is training in semi-technical or technical or
semi-skilled or skilled fields. Self-study training must be contrasted with the
type "down time" reading which, as stated in subsection (d)(2)(B), below, does
not qualify for the credit.
G)
Training does not have to occur on the premises of the employer. Training does
not have to occur in the State of Illinois. However, in order to claim costs of
employee travel and lodging, an employer must document that the costs of travel
were related to the training and were deducted in determining the employer's
federal taxable income.
H) A
training expense that would otherwise not qualify for the credit will not be
deemed to qualify for the credit because of a designation of an employee as a
probationary employee, a trainee, or a similar designation of that
nature.
d)
Only amounts expended for eligible training will qualify as eligible training
expenses. Such costs may or may not constitute "direct expenses" as that term
is used in normal accounting parlance. Capitalized costs will not qualify for
the credit. However, as noted below, depreciation expenses associated with
capital expenditures may qualify for the credit. The term "compensation" used
in this Section is defined in IITA Section 1501(a)(3).
1) The following costs qualify as eligible
training expenses:
A) Compensation of
employees for time spent in training others in in-house training will qualify
as eligible training expenses, but the compensation must be prorated based on
the amount of time actually spent in conducting the training.
B) Compensation of an employee for time spent
in preparing for in-house training as or for an instructor will qualify because
such compensation is an expense of the training.
C) Compensation of an employee for time spent
in training will qualify for the credit.
D) The cost of materials (i.e., slides,
hand-outs, etc.) for in-house training will qualify for the credit because such
costs are expenses of the training.
E) Pro-rata rent of a training facility is an
expense eligible for the credit. Similarly, depreciation expenses for a
training facility owned by a taxpayer or for equipment used for training are
eligible expenses.
F) Costs of
registration (including allocable wages of employees performing the
registration) with state, federal or industry authorities may be eligible
expenses, if such costs are related to eligible training.
G) Tuition reimbursement is an eligible
expense provided that the tuition amounts were deducted in determining the
employer's federal taxable income.
H) Costs of travel and lodging for eligible
training provided that the costs were deducted in determining the employer's
federal taxable income.
2) The following costs do not qualify as
eligible training expenses:
A) The cost of
the training facility and equipment is not an eligible expense. Capital costs
are not eligible for the credit. However, as noted above, depreciation expense
is eligible.
B) Compensation of an
employee for "down time" spent informally training (i.e., a mechanic with no
machinery on which to work reading about new equipment, or a mechanic reading
about specifications of equipment never before encountered) is not an eligible
expense.
C) Compensation of an
employee for time spent supervising another employee is not an eligible
expense. For instance, a supervisor spending an hour a day reviewing and
discussing a new employee's progress and planning the new employee's future
work schedule would not be an eligible expense.
D) Cost of a meal (breakfast or lunch)
provided in the course of a brief training session is not an eligible expense.
Similarly, the cost of meals provided to an employee during an all-day training
session is not an eligible expense.
3) Employers must maintain records sufficient
to document that the training is eligible training. Employers must maintain
records that document the amounts expended for eligible training expenses. An
employer may maintain documentation as required for the Industrial Training
Program of the Illinois Department of Commerce and Community Affairs (see 56
Ill. Adm. Code
2650.120
), or as maintained by employers in compliance with the requirements of the
Illinois Secretary of State's Workplace Literacy Program (see 23 Ill. Adm. Code
3040.220 and 3040.240) for purposes of documentation for the Training Expense
Credit. Employers may claim the credit based upon average or standard costs of
training each employee. The documentation of amounts expended for eligible
training expenses, or documentation maintained to claim the credit based upon
average or standard costs, must be sufficient to demonstrate that the training
for which the credit is claimed is on behalf of persons employed by the
taxpayer in Illinois, or Illinois residents employed outside of Illinois by the
taxpayer, the training qualifies for the credit under the standards of
subsection (b) of this Section above, and the expenditures are eligible
training expenses under the standards of subsection (d)(1) above. In the event
an employer claims the credit based upon average or standard costs, this
documentation must include detailed information concerning the methodology
utilized in determining the average or standard costs.
e) For purposes of the training expense
credit and this rule, the term "persons employed by the taxpayer in Illinois"
shall include both employees whose compensation is subject to withholding under
IITA Section 701 (including employees who are exempt from withholding pursuant
to IITA Section 701(d)). A person is employed in Illinois by the taxpayer if
that person has "compensation paid in this State" as that term is defined in
IITA Section 304(a)(2)(B). Sole proprietors, partners of partnerships,
shareholders of corporations, beneficiaries of trusts or estates, or other
individuals who own an interest in the employer are not employees for purposes
of this credit, unless in the case of shareholders or beneficiaries, they are
able to demonstrate that, separate and apart from their ownership status, they
are also employees of the concern.
f) For partners and shareholders of
subchapter S corporations, there shall be allowed a credit under IITA Section
201(j) to be determined in accordance with the determination of income and
distributive share of income under Sections 702 and 704 and subchapter S of the
Internal Revenue Code (IITA Section 201(j)).
g) Any credit allowed under this subsection
which is unused in the year the credit is earned may be carried forward to each
of the 5 taxable years following the year for which the credit is computed
until it is used. This credit shall be applied first to the earliest year for
which there is a liability. If there is a credit under this subsection from
more than one tax year that is available to offset a liability, the earliest
credit arising under this subsection shall be applied first.No carryforward
credit may be claimed in any tax year ending on or after December 31, 2003.
(IITA Section 201(j))
