Current through Register Vol. 48, No. 38, September 20, 2024
a) In General
1) Any payment to an Illinois resident as an
employee or otherwise by any payer maintaining an office or transacting
business in this State shall be subject to withholding of Illinois income tax
if those payments are subject to withholding of federal income tax. Any payer
maintaining an office or transacting business in this State making these
payments shall be considered an "employer" for purposes of IITA Article 7 and
these regulations and, accordingly, will be subject to the same rules and
procedures governing employers withholding tax on compensation paid in
Illinois. For example, these payers will be required to register as withholding
agents, and shall be subject to the reporting (and payment) requirements of
IITA Sections 703 and 704. Also, these payers will be subject to the penalties
prescribed in Article 10 of the Act.
2) Payments to an Illinois resident by a
payer transacting business or maintaining an office in Illinois on which
federal withholding is required shall be considered "compensation paid in
Illinois" for purposes of IITA Article 7 and this Part. Illinois residents
receiving these payments shall be considered "employees" for purposes of IITA
Article 7 and this Part. Thus, for example, the computation of the amount of
tax to be deducted and withheld shall be made pursuant to Section
100.7050
and the payee shall be entitled to a withholding exemption pursuant to Section
100.7100.
3) Withholding shall be required on the first
payment on which withholding of federal income tax is required and shall
continue to be required in respect of all these payments until withholding of
federal income tax on the payments terminates pursuant to the Internal Revenue
Code and the regulations thereunder.
b) Payments Subject to Federal Withholding
Withholding of Illinois income tax is required on all
payments to Illinois residents on which withholding of tax is required under
the Internal Revenue Code. This applies not only to compensation but to any
other type of payment on which federal withholding of income tax is required.
Withholding shall be considered required under the Internal Revenue Code if the
payee is authorized either by the Internal Revenue Code or the regulations
thereunder to request withholding of federal income tax on a particular type of
payment and the payee and payer have entered into an agreement for withholding.
No authorization from the payee for Illinois withholding is necessary in this
situation; the requirement of federal withholding even though voluntarily
elected shall automatically impose Illinois withholding.
c) Exceptions
1) Withholding will not be required under
this Section on any payment to the extent the payment is not includable in the
recipient's base income. Thus, if a payment consists partially of a return of
capital, only that part of the payment that is not a return of capital and,
hence, is income would be subject to withholding. Also annuity payments from
qualified employee benefit plans, which are not includable in Illinois base
income under IITA Section 203(a)(2)(E), would not be subject to withholding
under this Section notwithstanding an agreement between the payor and the payee
for the withholding of federal income tax on those payments. Similarly, if a
payment consists of an amount that is exempt from taxation by this State either
by reason of its Constitution or by reason of the Constitution, treaties or
statutes of the United States (i.e., interest on obligations of the United
States), the payment would not be subject to withholding under this
Section.
2) Withholding will not be
required on any payment under this Section, except "compensation paid in
Illinois", as defined in Section
100.7010(a),
to the extent that the payment is subjected to withholding by another state. A
signed declaration by the payee to the effect that another state is withholding
income tax on a payment shall relieve the payer of the requirement to withhold
Illinois tax on the payment.
