After helping Illinois taxpayers resolve issues with the Illinois Department of Revenue for over 17 years, I have come to the conclusion that nothing makes IDOR’s blood boil like the thought of a taxpayer escaping Illinois income tax by incorrectly claiming they are a non-resident or partial year resident of Illinois.
Let’s talk about the general rules of what Illinois can and cannot tax if you are a part-year resident or non-resident of the great state of Illinois:
First, if you live in Illinois, Illinois is going to tax all of your income no matter where you earned it. You can receive a credit for tax paid to other states to prevent double taxation, but all of your income is still subject to Illinois income tax.
If you live in a different state and work in Illinois, Illinois is going to tax all of the income you earned in Illinois.
And if you moved into or out of Illinois during the year, Illinois will make sure that all the income earned in Illinois or income you earned while living in Illinois is subject to Illinois tax. But if you lived and worked in another state before or after becoming an Illinois resident it’s not subject to Illinois income tax.
But don’t think you are safe from Illinois income tax just because you moved out of state and worked out of state. Illinois uses another tool to tax income if you live and work out of state—a concept called “domicile,” or your permanent home. Illinois may say that even though you lived and worked out of state, it was just a temporary move and your actual tax home was still in Illinois, therefore your out of state income is taxable in Illinois.
To make matters worse, in my experience, even if you have a legitimate claim that your income is not subject to Illinois tax, the front like reviewers at the Illinois Federal State Exchange Unit that handles IL residency disputes are merciless. Even legitimate claims are VERY hard to get through.
To give yourself the best chance to proving your income is not taxable to Illinois because you lived and worked out of state, you must gather as much supporting documentation as you can find to support where you earned your income and where you lived. W-2 forms, 1099 forms, lease or mortgage documents, library cards, voter registration, library cards, medical records, veterinary records, Amazon records, or anything else that ties you to a location outside Illinois during the time period in question and helps you establish when you arrived or left the state.
And don’t be afraid to use your appeal rights! If you are unable to convince the Illinois Federal State Exchange Unit of your claim, the Illinois Department of Revenue will eventually issue a Notice of Deficiency with an assessment for underpaid tax, interest, and penalty. You have 60 days from the date of that to file an administrative appeal or file with the Illinois Tax Tribunal (depending on the total dollar amount owed). If IDOR is being unreasonable, utilize those appeal rights and get the case to an IDOR attorney or a judge who is may be better able to review the entire record and get to the right decision. Don’t let IDOR bully you into paying more tax than you owe
And if you want help evaluating your case, assembling your submission, and exercising your appeal rights, then give me and my team a call at 847-581-6388. I’m tax attorney Daniel Urban with Urban Tax Law. We look forward to hearing from you.