I moved out of Illinois partway through the year and kept working remotely for my Illinois employer, but my W-2 shows 100% Illinois wages -- how do I get Illinois to only tax the part of my income earned while I was still a resident, and get credit for tax I paid to my new state?

Plain-English summary

A taxpayer had lived in Illinois for years and worked for an employer that withheld Illinois state tax. In August 2019 he moved to another state and continued working for the same employer remotely. For 2019 he filed an Illinois nonresident/part-year-resident return (Schedule NR) allocating about 61.5% of his year's income to Illinois, reflecting the January 1 to August 12 period he actually lived and worked there, and he paid tax to his new state on the remaining 38.5% as a part-year resident there. Illinois later adjusted his return to tax 100% of his year's income, because his W-2 reported 100% of his wages as Illinois wages. He tried to get a corrected W-2 or a letter from his employer reallocating the wages, but the employer refused, saying its "Teleworking SOP" classified his move as "remote work" rather than "teleworking" and that the Illinois withholding was therefore correct as filed. The Department's Problems Resolution Division told him it had no authority to override the W-2-based allocation and forwarded the matter to the Legal Services Bureau, which issued this GIL.

The Department's answer: it comes down to where the "base of operations" was, not labels like "remote work." Section 304(a)(2)(B) of the Illinois Income Tax Act sources compensation to Illinois if the employee's service is performed entirely in Illinois, or is performed both in and out of Illinois but the out-of-state portion is merely "incidental," or -- for tax years before December 31, 2020 -- if some service is performed in Illinois and the employee's "base of operations" (or, if none, the place directing/controlling the service, or the employee's residence) is in Illinois. The Department told the taxpayer that Illinois does not draw a distinction between "remote work" and "teleworking" the way his employer's internal policy did; what matters is the base of operations, the same standard used for unemployment insurance purposes.

What the taxpayer needs to do to fix the allocation. To support reallocating the wages on Schedule CR of his amended 2019 Form IL-1040, the Department said he needs a letter from his employer, on company letterhead, stating that his base of operations from August 13 through December 31, 2019 was in his new state. Without that kind of employer-provided support, the Department's processing division will continue to allocate wages to Illinois based simply on what the W-2's state wages box shows.

A time-sensitive warning buried in the answer. The Department flagged that the statute of limitations for claiming the refund of the overpayment on the 2019 return would expire October 15, 2023 -- just under three months after this letter was issued -- so the taxpayer needed to file a Form IL-1040-X amended return by that date to preserve any refund claim.

What the Department didn't resolve. The GIL doesn't rule on the taxpayer's 2020-2022 returns beyond restating that, because those returns were filed as an Illinois nonresident, no credit for taxes paid to another state can be claimed for years in which he wasn't an Illinois resident at all -- and it doesn't guarantee that an employer letter would actually be obtainable or would change the result; it only describes what kind of proof would be needed to support a different allocation.

What this means for you

If you moved out of Illinois partway through the year and kept working for the same employer

Don't assume your W-2's state wages box is the last word. If your actual work location or base of operations changed before your employer's payroll system caught up, you may need documentation directly from the employer -- not just your own recollection or your new state's tax notices -- to convince Illinois to reallocate wages for the period after your move.

If your employer's internal "remote work" vs. "teleworking" policy differs from Illinois's test

Illinois doesn't care about your employer's internal HR classification. The controlling question under Section 304(a)(2)(B) is where your base of operations was (or, if you had none, where your work was directed/controlled from, or your residence) -- ask your employer to address that specific standard, not just their internal telework policy label.

If your employer refuses to issue a corrected W-2 or letter

The Department's Problems Resolution Division has no authority to override the W-2-based allocation on its own; it will follow whatever the W-2 shows unless you provide employer-issued support. If your employer won't cooperate, your realistic options may be limited to what the Department suggested: getting the correction from the employer, or instead pursuing relief through your other state's amended-return process for credit purposes.

Accountants and tax professionals advising clients who relocated mid-year

Track refund statute-of-limitations deadlines closely when a client's allocation dispute drags on -- this taxpayer's window to amend his 2019 return and preserve a refund was closing fast relative to when the GIL issued. Also note that nonresident-year returns (2020-2021 here) categorically can't claim an other-state credit under this fact pattern, regardless of any base-of-operations argument, because the credit is unavailable to a full nonresident.

Common questions

Q: My W-2 shows 100% of my wages as Illinois wages, but I moved out of state partway through the year -- will Illinois automatically adjust that?
A: No. The Department's processing division allocates wages to Illinois based on what the W-2's state wages box shows unless you provide employer-issued documentation supporting a different allocation.

Q: What does Illinois actually look at to decide where my compensation is "sourced"?
A: Under Section 304(a)(2)(B), whether the service was performed entirely in Illinois, whether any out-of-state work was merely incidental, or (for years before December 31, 2020) the employee's "base of operations" -- not internal employer labels like "remote work" versus "teleworking."

Q: What documentation does the Department want to support reallocating my wages off Illinois?
A: A letter from your employer, on company letterhead, stating your base of operations for the specific period in question.

Q: Can I claim a credit for taxes paid to another state for years when I was an Illinois nonresident?
A: No. As explained in this letter, a nonresident is not entitled to claim a credit for taxes paid to another state on Illinois-sourced income; the credit issue only arose here for 2019, the part-year-resident year.

Q: Is this letter a final, binding decision on my situation?
A: No. It's a General Information Letter, which does not interpret or prescribe the tax law and isn't binding on the Department. A binding Private Letter Ruling would require a separate request meeting the requirements of 2 Ill. Adm. Code 1200.110(b).

Citations and references

Statutes, regulations, and cases:

• 35 ILCS 5/304(a)(2)(B) (compensation sourcing; base-of-operations test for tax years before December 31, 2020)
• 2 Ill. Adm. Code 1200.120(b) and (c) (GIL is general information only, not binding)
• 2 Ill. Adm. Code 1200.110(b) (requirements for requesting a binding Private Letter Ruling)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2023/it23-0014-gil.pdf

Original ruling text

IT-23-0014-GIL 07/21/2023 COMPENSATION
Taxpayer must provide support from employer indicating in which state
compensation is paid.
July 21, 2023
NAME
ADDRESS
Re:
Dear: NAME
This is in response to your letter dated July 21, 2023, in which you requested a letter
ruling. 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 2 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:
Hi, IL Tax Specialist NAME and Illinois Department of Revenue’s Legal Services Bureau,
As per suggestion from the original email being replied from NAME, I had submitted the
STATE tax return amend for year 2019 in July, 2022 to STATE Department of Revenue
(AGENCY) for getting credit of double taxation paid to Illinois Department of Revenue
(IDOR) and ODOR. The double taxation (mutual taxed) period is from August 13 to
December 31, 2019. Please see the attached document "Letter to STATE DOR for amend
07082022". Eventually, I have received the replies from AGENCY in May 2023, as the
attached "STATE Letter ID ####### stating that:
It appears that the income was not taxable to both STATE and Illinois. Once you
moved to STATE and no longer physically worked in the State of Illinois that
income earned in STATE would not be taxable to Illinois. Thus, the Illinois tax return
should only have contained part of your income and not the full amount of income
you earned during the 2019 year. Thus, you would not have mutually taxed income
and not be eligible for the credit-for-taxes paid.
Please review the attached AGENCY notice. Also I had been working with my employer
COMPANY regarding my 2019 W-2 state tax withholding to Illinois for the 2019 full year
earned income. According to company policy as the attached "Teleworking SOP final
2020", my move to STATE is allowed as remote work but not as teleworking. Therefore,
my COMPANY 2019 W-2 state tax withholding to Illinois for the 2019 full year earned
income is correct and proper, and there is no way the W-2 can be updated. The double
taxation (or mutual taxed) for the mentioned period is the fact. As per the AGENCY notice,
please agree that my 2019 Illinois tax return should only have contained pert of my 2019

earned income from COMPANY. Jan. 1 to August 12, 2019, and refund me the
overpayment of $$$$$.
Thanks,
NAME
PHONE

Looks like an email was sent back in August in reference to the situation. See below:
Mr. NAME
The email received regarding the issue of double taxation was forwarded to me for
research and response.
I apologize that you were told to contact the Problems Resolution Division for assistance
regarding the issue you are having. However, PRD is not able to assist you with this issue
as PRD is required to follow the same procedures based on interpretation provided by
our Legal Services Bureau per the laws and regulations governing this issue.
When this issue began for 2019, you had filed an Illinois schedule NR to allocate wages
you received from your employer for the period of time that you worked in Illinois prior to
moving to STATE. However, the W-2 issued by your employer allocated 100% of the
wages to Illinois. That is why our processing division changed the schedule NR and
assessed tax based on this allocation. They advised you to obtain a corrected W-2, or a
letter from your employer showing the actual amount of wages allocated to Illinois for the
period of time you were in Illinois. Per the notes on your account, it appears you attempted
to get this information from your employer but the employer refused. PRD has no other
solution to provide to you to correct this issue. As stated above, PRD is required to follow
the same processes used by the processing division and may not offer any additional
guidance regarding this issue.
As a part-year resident for 2019, you may not claim a credit for the non-resident portion
of the income received. If your employer refuses to provide the requested information
from the employer regarding the amount of wages earned while a resident of Illinois then
our processing bureau is required to allocate the income shown as Illinois wages on the
W-2. For 2019, the W-2 for the state is marked as Illinois, therefore, the wages reported
in the state wages box of the W-2 are Illinois wages and required to be allocated to Illinois
on the schedule NR as Illinois wages.
For the tax years 2020 and 2021, the Illinois returns were shown as non-resident,
therefore, we would not be able to accept a correction or make an adjustment to allow
credit for taxes paid to another state, as your return shows you were not a resident of
Illinois for that year. Therefore, you are not entitled, as a non-resident of Illinois, to claim
that credit. The employer provided W-2’s showing Illinois wages for 2020 and 2021. As

explained above, these wages are allocable to Illinois based on the amount reported in
the state wages box of the W-2 for those years.
The only solution I may offer is a solution that requires action by either your employer by
providing corrected W-2’s or a letter from them, or by filing amended returns with STATE
to claim credit for taxes paid to other states. This is the only solution to your issue that I
may offer.
However, you may contact the Illinois Department of Revenue’s Legal Services Bureau
for their opinion regarding your issue. Their telephone number is 217-792-7054. Their
email address is [email protected].
Hello, IL Tax specialist,
Your email address is given by [email protected] tax assistant after multiple emails
of discussion with no final solution.
This is regarding to claim credit for tax paid to another state for my IL 2019 tax return.
As an Illinois resident for many years, I have moved to STATE since August 13, 2019,
and worked remotely. That means I was an IL part-year resident in year 2019 and a
nonresident after. However, my employer has been withholding state tax to Illinois on my
all income (since then till now), according to its policy and my agreement. My 2019 IL tax
return was originally filed by using IL NR form on which the Illinois portion (Column B)
income was calculated as 61.5% of the whole year income based on the percentage for
time period of Jan. 1 to August 12. On the other hand, I also filed STATE State tax return
and paid state tax as a part-year-resident on income earned from Illinois for the period
from August 13 to December 31, 2019, which is 38.5% of the whole year income.
Later on, my 2019 IL filed tax return was adjusted by your specialist to tax based on the
whole year income, since it is considered as 100% earned and received from Illinois, like
a full year resident.
In that case, could I use IL CR form (and report on IL 1040 form line 15) to claim credit
for tax paid to STATE for tax year 2019? Also how about the following tax years 2020,
2021, and 2022?
Thanks,
NAME
RULING
RE: Credit for tax paid to another state
Dear NAME,

Section 304(a)(2)(B) of the Illinois Income Tax Act prescribes:
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) For tax years ending prior to December 31, 2020, 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 order to support the allocation of your wages reported on the Schedule CR from your
2019 Form IL-1040 individual income tax return, you will need to provide a letter from
your employer, on company letterhead, indicating that your base of operations from
August 13, 2019 until December 31, 2019 was in STATE. Illinois did not draw a distinction
between remote work or teleworking, as your employer seems to suggest, but instead
focused on the base of operations, which was the same standard used for unemployment
insurance contributions.
I would note that the statute of limitations on obtaining a refund of the $$$$ overpayment
reported on the return will expire on October 15, 2023. You will need to file a 2019 Form
IL-1040-X amended individual income tax return on or before that date in order to
preserve your ability to obtain a refund.
I hope this information is helpful.
Sincerely,
NAME
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, you may contact
me at (217) 782-2844.

Sincerely,

Brian Fliflet
Deputy General Counsel (Income Tax)

cc:

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