What does Illinois General Information Letter IT 19-0008-GIL conclude about Withholding – Other Rulings?

Plain-English summary

An Illinois resident who worked as a consultant lived full-time in one state ("STATE 1") but traveled to another state ("STATE 2") for work during the year. Their employer issued a W-2 listing the full federal wage amount in Box 16 for both states, and the employee wanted to know whether that was correct, or whether they needed a corrected W-2 or a letter from the employer's payroll department allocating wages between the two states.

The Department explained the general withholding rules rather than resolve the underlying multi-state dispute directly. Under 35 ILCS 5/701, Illinois employers must withhold on compensation "paid in this State." Section 304(a)(2)(B) of the Illinois Income Tax Act says compensation is paid in Illinois if the service is performed entirely in Illinois, or performed both within and without Illinois where the out-of-state work is merely incidental, or where the individual's base of operations (or the place directing/controlling the work) is in Illinois. Separately, because the employee is an Illinois resident, Section 301(a) requires that all items of income included in base income be allocated to Illinois.

Applying those provisions to the facts as described, the Department concluded that the employee's compensation was properly treated as paid in Illinois under either the "incidental" or "base of operations" prong of Section 304(a)(2)(B), and that as an Illinois resident the employee's full compensation is separately allocated to Illinois under Section 301(a). On that basis, the employer had correctly reported the full wage amount on the Illinois W-2, and no corrected W-2 or employer letter was needed. The Department noted that the possibility STATE 2 might also tax and withhold on some of the same income under its own law does not change the Illinois analysis.

Because this is a General Information Letter, the Department was careful to frame this as general guidance based on the facts as presented, not a binding determination. It also pointed the taxpayer toward 86 Ill. Adm. Code 100.7010 and Illinois Publication 130 for further detail on the "paid in this State" test, and noted that a binding Private Letter Ruling is available under 86 Ill. Adm. Code 1200.110(b) if the taxpayer wants a decision the Department is bound by.

What this means for you

Employees who work in more than one state

If you're an Illinois resident whose job involves travel to another state, your employer may be correct to report your full wages as Illinois income on your W-2 — even if the other state also taxes some of that income. Whether your out-of-state work counts as "incidental" to your Illinois-based work, or whether Illinois is your "base of operations," under 35 ILCS 5/304(a)(2)(B) determines the answer, and as an Illinois resident your income is separately subject to Illinois allocation under Section 301(a) regardless. Being taxed by two states on overlapping income is a double-taxation problem to manage through credits, not necessarily a W-2 reporting error.

Employers and payroll departments

Section 701 requires withholding on compensation "paid in this State," and the "incidental service" and "base of operations" tests in Section 304(a)(2)(B) are the relevant tools for structuring W-2 reporting for employees who split time between Illinois and another state. This GIL supports reporting full wages to Illinois (for an Illinois resident) without needing to issue a corrected W-2 or a special payroll letter, when the facts fit those same tests.

Accountants and tax professionals

This letter is a useful illustration of how the Department applies 35 ILCS 5/304(a)(2)(B) and 301(a) together for a resident employee working partly out of state, but it is fact-specific and non-binding. If a client needs certainty on similar facts, remember that 86 Ill. Adm. Code 1200.110(b) sets out the items needed to request a binding Private Letter Ruling instead.

Common questions

Q: Does this GIL mean an Illinois resident is always taxed in full by Illinois even when working in another state?
A: Not always — it depends on whether the out-of-state work is "incidental" to Illinois-based work, or whether the base of operations is in Illinois, under 35 ILCS 5/304(a)(2)(B). On the facts described here, the Department found the compensation was properly treated as paid in Illinois, and separately noted that Section 301(a) allocates all of a resident's base income to Illinois regardless.

Q: Did the Department say the employee needed a corrected W-2 or a letter from the employer?
A: No. Based on the facts presented, the Department concluded the employer had correctly reported the wages and that no amended W-2 or employer letter was required.

Q: Does it matter that another state might also tax and withhold on the same wages?
A: No, according to the letter. The Department stated that this fact "is not relevant" to the Illinois withholding and reporting analysis.

Q: Is this letter binding on the Department for other taxpayers?
A: No. It is a General Information Letter under 86 Ill. Adm. Code 1200.120(b) and (c), which is general guidance based on the facts presented and not a statement of Department policy. A taxpayer who wants a binding answer must request a Private Letter Ruling under 86 Ill. Adm. Code 1200.110(b).

Citations and references

Statutes and regulations:

• 35 ILCS 5/701 (employer withholding on compensation paid in Illinois)
• 35 ILCS 5/304(a)(2)(B) (tests for when compensation is "paid in this State")
• 35 ILCS 5/301(a) (allocation of a resident's base income to Illinois)
• 86 Ill. Adm. Code 100.7010 (further guidance on compensation paid in Illinois)
• 86 Ill. Adm. Code 1200.120(b), (c) (General Information Letters — non-binding)
• 86 Ill. Adm. Code 1200.110(b) (requirements to request a binding Private Letter Ruling)
• Illinois Publication 130 (withholding guidance)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2019/it19-0008-gil.pdf

Original ruling text

IT-19-0008-GIL 05/10/2019 WITHHOLDING – OTHER RULINGS
A general explanation is provided of the principles for determining when compensation paid to
an employee providing services within and without Illinois is subject to withholding. (This is a
GIL.)

May 10, 2019

Re: Illinois income tax
Dear Xxxx:
This is in response to your letter received April 19, 2019, in which you request information regarding
Illinois income tax. The nature of your request and the information you have provided require that we
respond with a General Information Letter, which is designed to provide general information, is not a
statement of Department policy and is not binding on the Department. See 86 Ill. Adm. Code
1200.120(b) and (c), which may be found on the Department's web site at www.tax.illinois.gov.
Your letter states as follows:
I am writing to seek clarity and your advice on the following issue:
My employer COMPANY issued me a W2 with multiple states listed because I am a consultant
who lives full-time in STATE 1 but traveled to STATE 2 for work last year. My state income listed
in Box 16 for both states exactly matches my federal income in Box 1 ($$$). My employer’s
Payroll & Tax department tells me this is the correct way to show the income in Box 16 for each
state because both STATE 1 and STATE 2 require full reporting of income.
However, upon calling the Illinois Department of Revenue, I was told that I either need a) a
corrected W2 with the income allocated between the states or b) a letter on COMPANY
letterhead from the payroll department to Illinois Department of revenue indicating how much of
my wages would have been allocated to each state.
Did COMPANY report my income appropriately? If not, what legal statute or reference can I list
for them so this is corrected in the future? What steps should I take to file correctly?
If Option B is correct, COMPANY has requested me to get a letter from your office indicating
which details are required on the letter that COMPANY should send to the Department of
Revenue. Can you either mail this to me or send the details via email to E-Mail address?
RULING
Section 701of the Illinois Income Tax Act (35 ILCS 5/701) provides, in part:
(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:

IT 19-0008-GIL
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(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.
(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.
Section 304(a)(2)(B) of the Illinois Income Tax Act (35 ILCs 5/304) provides that, for employees other
than professional athletes:
Compensation is paid in this State if:
(i) The individual's service is performed entirely within this State;
(ii) The individual's service is performed both within and without this State, but the service
performed without this State is incidental to the individual's service performed within this State;
or
(iii) Some of the service is performed within this State and either the base of operations,
or if there is no base of operations, the place from which the service is directed or controlled is
within this State, or the base of operations or the place from which the service is directed or
controlled is not in any state in which some part of the service is performed, but the individual's
residence is in this State.
In Article 3 of the Illinois Income Tax Act, Section 301(a) of the Illinois Income Tax Act (35 ILCS 5/301)
provides:
All items of income or deduction which were taken into account in the computation of base
income for the taxable year by a resident shall be allocated to this State.

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IT 19-0008-GIL
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The amount of Illinois wages that should be reported on the Form W-2 is the amount “paid in this State”
on which withholding is required. According to your letter, you are a “consultant who lives fulltime in
STATE 1 but traveled to STATE 2 for work last year.” From this information, it appears as if either
Section 304(a)(2)(B)(ii) or (iii) apply to your situation. Because of this, the $$$ you earned would be
considered compensation “paid in this State” for purposes of Section 701 of the Illinois Income Tax Act.
Also, as an Illinois resident, under Section 301(a) of the Illinois Income Tax Act, your compensation
“paid in this State” is allocated entirely to STATE. Therefore, your employer did correctly report your
earnings on your W-2. The fact that, under STATE 2 law, some or all of the compensation may be
taxable by STATE 2 and subject to STATE 2 withholding is not relevant. You should file your Illinois
taxes based on your current Illinois W-2. No amended W-2 or letter from your employer is required.
Further guidance on when compensation is “paid in this State” can be found at 86 Ill. Adm. Code Section
100.7010, which can be found at:
http://www.ilga.gov/commission/jcar/admincode/086/086001000S70100R.html
and in Publication 130, which can be found at:
https://www2.illinois.gov/rev/research/publications/pubs/Documents/pub-130.pdf
As stated above, this is a general information letter which does not constitute a statement of policy that
applies, interprets or prescribes the tax laws, and it is not binding on the Department. If you are not
under audit and you wish to obtain a binding Private Letter Ruling regarding your factual situation,
please submit all of the information set out in items 1 through 8 of Section 1200.110(b). If you have any
further questions regarding this letter, you may contact me at (217) 557-5365.
Sincerely,

Michael D. Mankowski
Associate Counsel - Income Tax

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