§ 701 — Requirement and amount of withholding

Illinois § 701

• Jurisdiction: Illinois
• Topic: GOVERNMENT
• Ch. 35: REVENUE
• Act 35 ILCS 5/: Illinois Income Tax Act.
• Art.: Article 7 - Withholding Tax

Text

(a) In General. Every employer maintaining an office or transacting business within this State and required under the provisions of the Internal Revenue Code to withhold a tax on: (1) compensation paid in this State (as determined under Section 304(a)(2)(B)) to an individual; or (2) payments described in subsection (b) shall deduct and withhold from such compensation for each payroll period (as defined in Section 3401 of the Internal Revenue Code) an amount equal to the amount by which such individual's compensation exceeds the proportionate part of this withholding exemption (computed as provided in Section 702) attributable to the payroll period for which such compensation is payable multiplied by a percentage equal to the percentage tax rate for individuals provided in subsection (b) of Section 201. (a-5) Withholding from nonresident employees. For taxable years beginning on or after January 1, 2020, for purposes of determining compensation paid in this State under paragraph (B) of item (2) of subsection (a) of Section 304: (1) If an employer maintains a time and attendance system that tracks where employees perform services on a daily basis, then data from the time and attendance system shall be used. For purposes of this paragraph, time and attendance system means a system: (A) in which the employee is required, on a contemporaneous basis, to record the work location for every day worked outside of the State where the employment duties are primarily performed; and (B) that is designed to allow the employer to allocate the employee's wages for income tax purposes among all states in which the employee performs services. (2) In all other cases, the employer shall obtain a written statement from the employee of the number of days reasonably expected to be spent performing services in this State during the taxable year. Absent the employer's actual knowledge of fraud or gross negligence by the employee in making the determination or collusion between the employer and the employee to evade tax, the certification so made by the employee and maintained in the employer's books and records shall be prima facie evidence and constitute a rebuttable presumption of the number of days spent performing services in this State. (a-10) If the compensation is paid to a loan out company, as defined under Section 10 of the Film Production Services Tax Credit Act of 2008, if the compensation is considered compensation paid in this State under paragraph (B) of item (2) of subsection (a) of Section 304, and if the compensation is for in-State services performed for a production that is accredited under Section 10 of the Film Production Services Tax Credit Act of 2008 and commences on or after the effective date of this amendatory Act of the 104th General Assembly, then the production company or its authorized payroll service company shall withhold tax on that compensation under this Article 7 and shall withhold at the tax rate provided in subsection (b) of Section 201 on all payments to loan out companies for services performed in Illinois by the loan out company's employees. Notwithstanding any other provision of law, nonresident employees of loan out companies who perform services in Illinois shall be considered taxable nonresidents and shall be subject to the tax under this Act in the taxable year in which the employee performs services in Illinois. (b) Payment to Residents. Any payment (including compensation, but not including a payment from which withholding is required under Section 710 of this Act) to a resident by a payor maintaining an office or transacting business within this State (including any agency, officer, or employee of this State or of any political subdivision of this State) and on which withholding of tax is required under the provisions of the Internal Revenue Code shall be deemed to be compensation paid in this State by an employer to an employee for the purposes of Article 7 and Section 601(b)(1) to the extent such payment is included in the recipient's base income and not subjected to withholding by another state. Notwithstanding any other provision to the contrary, no amount shall be withheld from unemployment insurance benefit payments made to an individual pursuant to the Unemployment Insurance Act unless the individual has voluntarily elected the withholding pursuant to rules promulgated by the Director of Employment Security. (c) Special Definitions. Withholding shall be considered required under the provisions of the Internal Revenue Code to the extent the Internal Revenue Code either requires withholding or allows for voluntary withholding the payor and recipient have entered into such a voluntary withholding agreement. For the purposes of Article 7 and Section 1002(c) the term "employer" includes any payor who is required to withhold tax pursuant to this Section. (d) Reciprocal Exemption. The Director may enter into an agreement with the taxing authorities of any state which imposes a tax on or measured by income to provide that compensation paid in such state to residents of this State shall be exempt from withholding of such tax; in such case, any compensation paid in this State to residents of such state shall be exempt from withholding. All reciprocal agreements shall be subject to the requirements of Section 2505-575 of the Department of Revenue Law (20 ILCS 2505/2505-575). (e) Notwithstanding subsection (a)(2) of this Section, no withholding is required on payments for which withholding is required under Section 3405 or 3406 of the Internal Revenue Code.

Legislative History

(Source: P.A. 104-453, eff. 12-12-25.)