Illinois Administrative Code › Title 86 - REVENUE › Part 100 - INCOME TAX › Subpart S - REQUIREMENT AND AMOUNT OF WITHHOLDING › Section 100.7000 - Requirement of Withholding (IITA Section 701)

Current through Register Vol. 48, No. 28, July 12, 2024
a) General rules. Every employer maintaining
				an office or transacting business within this State and required under the
				provisions of
				26
				USC 3401 through
				3404
				to withhold and pay federal income tax on compensation paid in this State (see
				Section
				100.7010
				of this Part) to an individual is required to deduct and withhold from such
				compensation for each payroll period (as defined in
				26
				USC 3401 ), an amount computed in accordance
				with IITA Section 701 and 702. Illinois income tax is not required to be
				withheld on any compensation paid in this State of a character which is not
				subject to federal income tax withholding (whether or not such compensation is
				subject to withholding for federal taxes other than income tax, e.g., F.I.C.A.
				(Social Security taxes). (As to what constitutes "transacting business within
				this State", see Section
				100.7020
				of this Part.)
b) Example. This
				section may be illustrated by the following examples:
1) Example 1: A is a typist in the offices of
				B corporation, where she has worked regularly for two months. A is, however,
				supplied to B corporation by C, a temporary help agency located in Illinois. C
				renders a weekly bill to B corporation for A's services, and C then pays A. B
				corporation is not A's "employer" within
				26
				USC 3401(d) and B
				corporation is therefore not required by the Internal Revenue Code to withhold
				a tax on A's compensation. Since B corporation is not required to withhold a
				tax for federal purposes on A's compensation, it is not required to do so for
				Illinois purposes. The temporary help agency, however, is required to withhold
				from A's compensation for federal purposes and must similarly do so for
				Illinois purposes.
2) Example 2: A
				is employed as a cook by Mr. and Mrs. B. The B's are required to withhold FICA
				(i.e., Social Security) tax from compensation paid to A, but are not required
				to withhold from such compensation for income tax under the Internal Revenue
				Code because, under
				26
				USC 3401(a)(3), A's
				compensation does not constitute "wages". Since the B's are not required to
				withhold income tax for federal purposes, they are not required to do so for
				Illinois purposes.
3) Example 3: A
				is a full time worker on B's wheat farm. A's duties include soil cultivation,
				raising and harvesting wheat, and maintenance of farm tools and equipment. B is
				not required to withhold from A's compensation for federal income tax purposes
				since, under
				26
				USC 3401(a)(2), A's
				compensation does not constitute "wages". Therefore B is not required to
				withhold for Illinois tax purposes.
4) Example 4: A is a factory worker for B
				corporation. When A reaches retirement age, he begins receiving a pension from
				B corporation's qualified pension trust. Under
				26
				USC 3401(a)(12)(A), A's
				pension payments do not constitute "wages". Therefore, neither B nor the
				pension trust is required to withhold income tax for federal purposes and,
				accordingly, neither would withhold for Illinois tax purposes.
5) Example 5: A is a corporate executive. On
				January 1, 1965, A entered into an agreement with B corporation under which he
				was to be employed by B in an executive capacity for a period of 5 years. Under
				the contract, A is entitled to a stated annual salary and to additional
				compensation of $10,000 for each year, the additional compensation to be
				credited to a bookkeeping reserve account and deferred, accumulated and paid in
				annual installments of $5,000 on A's retirement beginning January 1, 1970. In
				the event of A's death prior to exhaustion of the account, the balance is to be
				paid to A's personal representative. A is not required to render any service to
				B after December 31, 1969. During 1970, A is paid $5,000 while a resident of
				Illinois. The $5,000 is not excluded from "wages" under
				26
				USC 3401(a); therefore, B is
				required to withhold federal income tax, and, since it is compensation "paid in
				this State" (see Section
				100.7010(g)
				of this Part), B must withhold Illinois income tax on A's deferred
				compensation.