Compensation is paid in Illinois when the employee’s services are “localized” in Illinois. This statement applies to all individuals except qualifying residents of Iowa, Kentucky, Michigan, and Wisconsin. If any of the following conditions are met, compensation is paid in Illinois.
- The employee’s service is localized in Illinois because all the service is performed in Illinois.
- Some of the employee’s services are performed outside Illinois, but the services outside Illinois areincidentalto the service performed inside Illinois. Incidental services are those that support the employee’s primary service, are temporary or transitory, or are isolated transactions.
- The employee’s service isnotlocalized in any state under either of the rules above, but
- some of the service is performed in Illinoisand
- either the base of operations (i.e., the place from which the employee works) is in Illinois, or, if there is no base of operations, the place from which the service is directed or controlled is in Illinois.
- The employee’s service isnotlocalized in any state under any of the rules above, but
- some of the service is performed in Illinois,
- the base of operations or the place from which the service is directed or controlled isnotin any state in which some part of the service is performed,and
- the employee is an Illinois resident.
- A nonresident performs personal services (under a personal service contract) at a sporting event that takes place entirely in Illinois, providing the team is a resident of another state that imposes a comparable tax liability on residents of Illinois.
There are three limited exceptions when you arenotrequired to withhold Illinois Income Tax if a localization test described above is met. These exceptions are described below.
- The employee works for an employer under the jurisdiction of the Surface Transportation Board (STB) and performs regularly assigned duties in more than one state. Although a localization test may be met, do not withhold Illinois Income Tax unless the employee is an Illinois resident.
- The employee works on an aircraft for an air carrier and performs regularly assigned duties in more than one state. Although a localization test may be met, do not withhold Illinois Income Tax unless the employee is an Illinois resident, or, if the employee is not an Illinois resident, the employee earns more than 50 percent of the compensation in Illinois (Illinois flight miles versus all flight miles). Illinois flight miles do not include miles flown over Illinois without taking off or landing.
- The employee works on a vessel and performs regularly assigned duties in more than one state. Although a localization test may be met, do not withhold Illinois Income Tax unless the employee is an Illinois resident.
Examples of compensation paid in Illinois:
- Your company, headquartered in Georgia, employs an Indiana resident to make sales for your company. You control your employee’s services, all of which are performed in Illinois, from your Georgia office. Compensation is paid in Illinois because all of your employee’s services are performed in Illinois.
- Your company, headquartered in Maryland, employs a Missouri resident to make routine service calls. The office from which the employee works and receives instruction (i.e., the base of operations) is in Illinois. About 95 percent of your employee’s customers are in Missouri and 5 percent are in Illinois. Compensation is paid in Illinois because the base of operations is in Illinois and significant services are performed in both states.
Note:“Significant” does not equal a percentage. In this example, although only 5 percent of the total customers are in Illinois, the service performed in Illinois is separate from, and therefore, not incidental to, the service performed in Missouri.
- Your company, headquartered in Ohio, employs an Illinois resident. There is no base of operations. The employee is controlled from your Ohio headquarters. Because services are performed in Illinois, Iowa, and Indiana, the services are not localized in only one state. Compensation is paid in Illinois because your employee is an Illinois resident, some of the service is performed in Illinois, and no service is performed in Ohio.
- Your airline company employs a Missouri resident to fly to various destinations in the United States. Your employee reports to and flies out of a terminal in Illinois. According to your records, 58 percent of your employee’s compensation (flight time in Illinois versus flight time to other destinations) is earned in Illinois. Therefore, you withhold Illinois Income Tax because more than 50 percent of your employee’s compensation was earned in Illinois. Illinois flight miles do not include miles flown over Illinois without taking off or landing.
See Section 100.7010 of the 86 Illinois Administrative Code for more information.
