Current through Register Vol. 48, No. 12, March 22, 2024
a) General rules. Every employer maintaining
an office or transacting business within this State and required under the
provisions of
26
USC 3401 through
3404
to withhold and pay federal income tax on compensation paid in this State (see
Section
100.7010
of this Part) to an individual is required to deduct and withhold from such
compensation for each payroll period (as defined in
26
USC 3401 ), an amount computed in accordance
with IITA Section 701 and 702. Illinois income tax is not required to be
withheld on any compensation paid in this State of a character which is not
subject to federal income tax withholding (whether or not such compensation is
subject to withholding for federal taxes other than income tax, e.g., F.I.C.A.
(Social Security taxes). (As to what constitutes "transacting business within
this State", see Section
100.7020
of this Part.)
b) Example. This
section may be illustrated by the following examples:
1) Example 1: A is a typist in the offices of
B corporation, where she has worked regularly for two months. A is, however,
supplied to B corporation by C, a temporary help agency located in Illinois. C
renders a weekly bill to B corporation for A's services, and C then pays A. B
corporation is not A's "employer" within
26
USC 3401(d) and B
corporation is therefore not required by the Internal Revenue Code to withhold
a tax on A's compensation. Since B corporation is not required to withhold a
tax for federal purposes on A's compensation, it is not required to do so for
Illinois purposes. The temporary help agency, however, is required to withhold
from A's compensation for federal purposes and must similarly do so for
Illinois purposes.
2) Example 2: A
is employed as a cook by Mr. and Mrs. B. The B's are required to withhold FICA
(i.e., Social Security) tax from compensation paid to A, but are not required
to withhold from such compensation for income tax under the Internal Revenue
Code because, under
26
USC 3401(a)(3), A's
compensation does not constitute "wages". Since the B's are not required to
withhold income tax for federal purposes, they are not required to do so for
Illinois purposes.
3) Example 3: A
is a full time worker on B's wheat farm. A's duties include soil cultivation,
raising and harvesting wheat, and maintenance of farm tools and equipment. B is
not required to withhold from A's compensation for federal income tax purposes
since, under
26
USC 3401(a)(2), A's
compensation does not constitute "wages". Therefore B is not required to
withhold for Illinois tax purposes.
4) Example 4: A is a factory worker for B
corporation. When A reaches retirement age, he begins receiving a pension from
B corporation's qualified pension trust. Under
26
USC 3401(a)(12)(A), A's
pension payments do not constitute "wages". Therefore, neither B nor the
pension trust is required to withhold income tax for federal purposes and,
accordingly, neither would withhold for Illinois tax purposes.
5) Example 5: A is a corporate executive. On
January 1, 1965, A entered into an agreement with B corporation under which he
was to be employed by B in an executive capacity for a period of 5 years. Under
the contract, A is entitled to a stated annual salary and to additional
compensation of $10,000 for each year, the additional compensation to be
credited to a bookkeeping reserve account and deferred, accumulated and paid in
annual installments of $5,000 on A's retirement beginning January 1, 1970. In
the event of A's death prior to exhaustion of the account, the balance is to be
paid to A's personal representative. A is not required to render any service to
B after December 31, 1969. During 1970, A is paid $5,000 while a resident of
Illinois. The $5,000 is not excluded from "wages" under
26
USC 3401(a); therefore, B is
required to withhold federal income tax, and, since it is compensation "paid in
this State" (see Section
100.7010(g)
of this Part), B must withhold Illinois income tax on A's deferred
compensation.
