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Illinois could soon change tax rules for out-of-state workers

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Thursday, July 11, 2019  |  Article  |  By Cole Lauterbach | The Center Square

Taxes, income (86)
Legislation on Gov. J.B. Pritzker’s desk would overhaul how Illinois workers who live in other states are taxed with implications for both businesses and employees.

The legislation would put Illinois in line with how other states operate and would give businesses leeway that other states have used to go after companies for tax revenue, according to tax experts.

About 4.3 million employees, or 3.2 percent of the workforce, work from home at least half the time, according to Global Workplace Analytics

Should Senate Bill 1515 become law, it would change Illinois’ qualification of whether a nonresident worker’s earnings are subject to the state’s income tax. Currently, the state taxes nonresident income if the workers “base of operations” is located in Illinois, an uncommon method.

“Illinois residents were getting the short end of the stick,” said Theodore R. Bots, a partner at Chicago-based Baker McKenzie and an expert on state taxation law. “They would be subject to tax in a bunch of other states where they might be working remotely, but not get any credit and Illinois would not be taxing the residents of those states for coming into Illinois and working.”

Under the proposal, Illinois would join most other states in only taxing a worker based on the amount of time spent working in the state as a percentage of their total working days in the year.

Additionally, the legislation would allow for a 30-day grace period for a worker performing duties inside state lines before the employer would have to consider part of their salary taxable under the Illinois income tax code. Bots called this one of the more business-friendly components of the law because it would save companies the cost and hassle of compliance until a worker spends 30 working days within state lines. 

New York is notorious for pursuing businesses that attend conferences in the state in an effort to track their employees who attended, entitling the state to a fraction of their income. Spending as much as a day within New York entitles the state to a portion of the worker’s income. 

Efforts to institute a 30-day window in federal law have been stymied.