All Illinois employers obligated to withhold federal income tax are required to deduct state income tax from wages of both resident and nonresident employees during each payroll period. Withholding may be based on wage bracket withholding tables or the percentage method provided by the Illinois Department of Revenue (IDOR).
“Employer” defined. An employer is:
• A person or organization that has an office or transacts business in Illinois for which a worker performs a service as an employee and is liable to withhold and pay federal income taxes to the Internal Revenue Service (IRS);
• A person or organization that has an office or transacts business in Illinois and that has control of the payment of wages for employee services if the employer does not have control of the payment of wages; or
• A payer that has an office or transacts business in Illinois and that makes payments from which federal income taxes are withheld.
“Employee” defined. An employee is either:
• A person who performs services subject to the legal control and direction of an employer, or
• An Illinois resident who receives payments on which federal income tax is withheld by the employer.
Reciprocal state agreements. Illinois has reciprocal agreements with Iowa, Kentucky, Michigan, and Wisconsin. No Illinois withholding is required on compensation paid by Illinois employers to residents of these states if the employee files Form IL-W-5-NR, Employee’s Statement of Nonresidence in Illinois, with the employer.
Nonresidents. If no reciprocity applies, beginning with tax year 2020, compensation paid to a nonresident of Illinois is subject to state withholding if an individual's service is performed within the state for more than 30 working ...