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I am domiciled in Washington for the entire year. My employer is IL based, and does not have an office in Washington.

Similar to Remote work. Live in one state, company in another state. tax witholding, I cannot say who gets to tax my income. Note that this is different than IL's nonresident income tax because I am not "physically" in IL and therefore will not perform any work there.

My employer is currently withholding IL state income taxes from my paychecks. Is that correct?

If it is not correct, than Im assuming I can get a refund from IL when I file for returns?

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  • What is your question?
    – JohnFx ♦
    Commented Mar 1, 2022 at 17:28
  • Did you ask your employer?
    – littleadv
    Commented Mar 1, 2022 at 19:19
  • Illinois' tax forms basically just say to pay tax on whatever your W2 says is your Illinois income. I suspect you have no Illinois in come but I'm having trouble finding a definitive source.
    – Kevin Carlson
    Commented Mar 1, 2022 at 20:52
  • Asked my employer (was scared to do so, looks like they were still in the middle of making adjustments). I seem to be exempt from IL taxes, but will confirm once I get my next paycheck.
    – Karl Jiang
    Commented Mar 1, 2022 at 21:53
  • Does your employer know that you are performing your work in Washington?
    – user102008
    Commented Mar 1, 2022 at 22:34

1 Answer 1

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I believe it is not correct for your employer to withhold IL taxes on your wages. In PUB-130 page 4, "When must I withhold Illinois Income Tax from my employee’s compensation?", it says,

You must withhold Illinois Income Tax when you withhold federal income tax from compensation you paid in Illinois. Compensation is paid in Illinois when the employee’s services are “localized” in Illinois.

Your services are not localized in Illinois because you did not perform your services in Illinois. On that page, it goes into detail about, "When is compensation paid in Illinois?" But it seems that none of those items apply to you.

In particular,

  1. If the employee’s service is localized in Illinois because all of the service is performed in Illinois, then compensation is considered paid in Illinois and subject to Illinois income tax withholding.

doesn't apply because the service is not performed in Illinois. And

  1. If the employee is an Illinois resident and
  • neither of the rules above apply and
  • no other state’s taxes are withheld,

then compensation is considered paid in Illinois and is subject to Illinois income tax withholding.

also doesn't apply since you are not an Illinois resident.

I believe you would file an Illinois nonresident return, i.e. attach Schedule NR to your IL-1040. On your Schedule NR, you would put federal amounts in column A and all 0 for Illinois amounts in column B. In the Schedule NR instructions for column B, line 5 (wages), it says that you must put the amount that is listed on your W-2 as Illinois wages, and that if it is incorrect you must attach a letter from your employer on company letterhead stating the correct Illinois wages. So I believe you have to either get your company to issue a W-2 with Illinois wages listed as 0, or get your company to write an official letter stating that your Illinois wages is 0, or that you did not perform your services in Illinois.

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  • Very informative! Thank you.My employer is now working on correcting their withholding.
    – Karl Jiang
    Commented Mar 3, 2022 at 9:15

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