Flow-through Entities Tax
State Filing Requirements
New Illinois Nonresident Withholding Requirements
December 10, 2008
Andrea K. Selley, CPA
Plante & Moran, PLLC
The Illinois Department of Revenue has mandated new filing and tax payment requirements for pass-through entities (i.e. partnerships, S corporations, and trusts) with nonresident owners or beneficiaries. Although tax payments made by pass-through entities for nonresident owners or beneficiaries are commonly referred to as nonresident “withholding,” these tax payments are not truly withholding, but rather are payments made on behalf of the nonresidents.
For tax years ending on or after December 31, 2008, PA 95-0233 (SB 1544) and PA 95-0707 (SB 783) require that pass-through entities remit tax payments on behalf of each nonresident owner or beneficiary based on their share of apportioned Illinois business income. Tax payments are due no later than the original due date of the tax return. Extensions will not be recognized for purposes of remitting nonresident payments.
Form IL-1000 will be used by pass-through entities to report and remit tax payments on behalf of nonresident owners or beneficiaries. If the payment covers the entire income tax obligation for a nonresident individual for that year, then IL-1040 will not be required. New Illinois tax forms will allow nonresident owners or beneficiaries to report a credit for income and/or replacement tax payments made by a pass-through entity on their behalf.
Individual, nonresident owners or beneficiaries who are included on an Illinois Composite Income and Replacement tax return, Form IL-1023-C, are exempt from the new “withholding” requirements.
Non-individual, nonresident owners who wish to elect out of the new “withholding” requirements can file Form IL-1000-E, which is a certificate stating that such nonresident will file all returns they are required to file and will make timely payment of all taxes with respect to their share of the income of the pass-through entity. Form IL-1000-E will need to be signed by the owner or beneficiary and filed by the pass-through entity.
There is no exemption from the filing and payment requirements for tiered pass-through entity structures. Partnerships, S corporations, and trusts with owners or beneficiaries who themselves are pass-through entities must still make payments related to the Illinois business income allocated to each nonresident owner or beneficiary, unless Form IL-1000-E has been filed for that owner or beneficiary.
Please refer to Illinois Department of Revenue Informational Bulletin FY 2009-02 dated October 2008 for more detail on this topic.
Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.