Telecommuting

[Chris M]

Should Illinois withhold tax from someone who lives and works from home in Pennsylvania?

The employer is located in Chicago.

[sjrcpa]

Illinois is not withholding the tax. The employer is.

And no they should not if the employee performs all services in PA. Employee needs to provide proper IL exemption from withholding form to employer.

[itonewbie]

Just as Susan says.

IL is not among one of the few states that tax telecommuters who do not work remotely for the convenience of their employers.

[Chris M]

Yes that is what i find confusing. Illinois is not one of the states that taxes telecommuting. However, I read that non residents are taxed if they receive Illinois source income. Source income is based on where the company is located.

[Chris M]

my client's company was located in Pennsylvania and relocated to Illinois. At this point my client continued to live and work from PA. However, the company began withholding Illinois state taxes. Now her 2019 W-2 has Illinois state withholding.  I wonder if this was a mistake on the company's part.

[itonewbie]

PA taxes employees who telecommute but not for the convenience of the employer.  The employer either thought that IL has the same rule or your client did not file the appropriate withholding/exemption certificate with the employer.

Your client should have noticed this long ago.  Check with the employer whether it's still possible to issue a W-2C to move the withholding to PA.  If not, your client will need to file an IL-NR return for a refund claim and be out of pocket for a while with the PA balance due.

[itonewbie]

Are you referring to the Compensation Paid in State provision?  The sounding of that provision is not exactly the same as how it's meant to be applied.  That section refers to localization of service and base of operation, which should not apply to your client's case, from the limited info you shared.  You may like to read up that section and the guidance in more details to clear your doubts.

[Chris M]

Thanks for your help. I will have the taxpayer talk to her payroll department.

[itonewbie]

NP, @Chris M!. We're glad to be of help.