Moving to Chicago...State Tax Forms are confusing me. Help?
January 4, 2018 2:31 PM Subscribe
Chicago residents, I need your help. I start a full time job next week and am not yet an established resident of the state. What forms do I need to complete?
I know YANML and YANMA.
So I got a job in my dream city, Chicago. Yey! I start next week but I'm moving over the next month from Kentucky. I have not yet applied for a permanent residency in IL (primarily because it took a month and literally until my state date for the HR department of the company that hired me to even send me an official hire letter/make everything official and I wasn't going to uproot my entire life for a job that was not 100% certain). I plan on doing so as soon as I can find a place to live, but given that I've had little time to plan, that might be a few weeks to a month. According to the Illinois Department of Revenue I suppose I need to file an 1040 and a Schedule NR, but I have a questions:
A: Since I am currently a resident of Kentucky I notice that as long as I remain a non-resident I don't have to pay state tax...is this true? Do I pay state tax to Kentucky?
B: Do I have to file the Schedule NR for the month or so I am not a resident? If so, when do I file this? 2018 tax season or once I start the job?
C: Do I need to refile to pay state tax once I become a resident (hopefully by February or March at the latest), and if so, what does that really entail? Just submitting a new form through my employer?
D. Is there a certain time frame during which I need to become a permanent resident given the reciprocal state clause or do I at all while I am working up there (let's assume I hate the job after a year or want to move back...).
Is there anything I am missing?
Thank you for any help/clarification!
I know YANML and YANMA.
So I got a job in my dream city, Chicago. Yey! I start next week but I'm moving over the next month from Kentucky. I have not yet applied for a permanent residency in IL (primarily because it took a month and literally until my state date for the HR department of the company that hired me to even send me an official hire letter/make everything official and I wasn't going to uproot my entire life for a job that was not 100% certain). I plan on doing so as soon as I can find a place to live, but given that I've had little time to plan, that might be a few weeks to a month. According to the Illinois Department of Revenue I suppose I need to file an 1040 and a Schedule NR, but I have a questions:
A: Since I am currently a resident of Kentucky I notice that as long as I remain a non-resident I don't have to pay state tax...is this true? Do I pay state tax to Kentucky?
B: Do I have to file the Schedule NR for the month or so I am not a resident? If so, when do I file this? 2018 tax season or once I start the job?
C: Do I need to refile to pay state tax once I become a resident (hopefully by February or March at the latest), and if so, what does that really entail? Just submitting a new form through my employer?
D. Is there a certain time frame during which I need to become a permanent resident given the reciprocal state clause or do I at all while I am working up there (let's assume I hate the job after a year or want to move back...).
Is there anything I am missing?
Thank you for any help/clarification!
You won't need to do anything during 2018. All of this will be taken care of with your tax filing after 12/31/18. And as a partial-year resident, you will need to fill out NR for your first year. If your company has a payroll department, I imagine they will take care of everything that's needed on that side.
Renting an apartment in Illinois will immediately make you ineligible for the tax reciprocity. The purpose of that is for people working in the Chicago and St. Louis Metro areas, but who live in other states.
As a native Illinoisan who moved out and back, the only thing you need to take care of immediately on arriving is getting a new license and registering your car. Permanent residency isn't something that's filed for, but is just established by having a home in Illinois.
posted by hwyengr at 3:04 PM on January 4, 2018 [1 favorite]
Renting an apartment in Illinois will immediately make you ineligible for the tax reciprocity. The purpose of that is for people working in the Chicago and St. Louis Metro areas, but who live in other states.
As a native Illinoisan who moved out and back, the only thing you need to take care of immediately on arriving is getting a new license and registering your car. Permanent residency isn't something that's filed for, but is just established by having a home in Illinois.
posted by hwyengr at 3:04 PM on January 4, 2018 [1 favorite]
If you aren't starting the job until next week, then I think all you need to do in the near-term is sign-up for IL state tax withholding when you start the job. In April 2019, you will need to do Illinois state taxes.
posted by Mid at 3:06 PM on January 4, 2018
posted by Mid at 3:06 PM on January 4, 2018
Perhaps I'm misunderstanding you, but your state of residence is determined by where you've moved with the intention of remaining. There's no need to make any formal application anywhere. Unless there are other facts you haven't mentioned, you'll become a resident of IL automatically when you move there next month.
You owe taxes to the state in which you reside. So next April (2019), you will have to pay taxes on your January 2018 income (or up to whenever you move) to KY and for the rest of 2018's income to IL. This is always a little bit fiddly, because theoretically the state has the right to require withholding for income earned in that state, regardless of residency. Fortunately for you, KY and IL have a reciprocal taxation agreement. If your new employer will cooperate and withhold KY taxes for your KY resident period and then switch to withholding IL taxes once you've moved, which they are allowed to do thanks to the reciprocity agreement, you'll just need to make part-year resident filings for both and should be okay unless your liabilities exceed your withholdings. However, your new employer may insist on withholding IL taxes the whole time, in which case you'll need to file your part-year for IL first, get a refund of the portion of the taxes withheld for that month, and then file a part-year for KY. (Or do them simultaneously if you can float the amount involved.) Either way, HR will have you fill out your state W4s as part of the hiring process. I would raise this issue with them, as they probably have run into it before and have established how they handle it.
posted by praemunire at 3:10 PM on January 4, 2018 [2 favorites]
You owe taxes to the state in which you reside. So next April (2019), you will have to pay taxes on your January 2018 income (or up to whenever you move) to KY and for the rest of 2018's income to IL. This is always a little bit fiddly, because theoretically the state has the right to require withholding for income earned in that state, regardless of residency. Fortunately for you, KY and IL have a reciprocal taxation agreement. If your new employer will cooperate and withhold KY taxes for your KY resident period and then switch to withholding IL taxes once you've moved, which they are allowed to do thanks to the reciprocity agreement, you'll just need to make part-year resident filings for both and should be okay unless your liabilities exceed your withholdings. However, your new employer may insist on withholding IL taxes the whole time, in which case you'll need to file your part-year for IL first, get a refund of the portion of the taxes withheld for that month, and then file a part-year for KY. (Or do them simultaneously if you can float the amount involved.) Either way, HR will have you fill out your state W4s as part of the hiring process. I would raise this issue with them, as they probably have run into it before and have established how they handle it.
posted by praemunire at 3:10 PM on January 4, 2018 [2 favorites]
Renting an apartment in Illinois will immediately make you ineligible for the tax reciprocity. The purpose of that is for people working in the Chicago and St. Louis Metro areas, but who live in other states.
I think this is technically correct (mostly--you could rent an apartment in IL but still be resident in KY under certain circumstances, just not OP's), but not actually responsive to OP's question in a way that could make it confusing. OP will be eligible for reciprocity up to the point OP moves to IL. The IL DOR page says:
If you are "an Iowa, Kentucky, Michigan, or Wisconsin resident who worked in Illinois, you must file Form IL-1040 and Schedule NR if you received income in Illinois from sources other than wages, salaries, tips, and commissions, or you want a refund of any Illinois Income Tax withheld.
If you received wages, salaries, tips, and commissions from Illinois employers, you are not required to pay Illinois Income Tax on this income. This is based on reciprocal agreements between Illinois and these states."
OP will be a KY resident working in IL for January 2018. Thus, OP fits into this category. After the February move, OP will be an IL resident working in IL, and so reciprocity won't apply, but it's not relevant or needed, either, as OP's employer will certainly be withholding IL state taxes at that point.
posted by praemunire at 3:20 PM on January 4, 2018
I think this is technically correct (mostly--you could rent an apartment in IL but still be resident in KY under certain circumstances, just not OP's), but not actually responsive to OP's question in a way that could make it confusing. OP will be eligible for reciprocity up to the point OP moves to IL. The IL DOR page says:
If you are "an Iowa, Kentucky, Michigan, or Wisconsin resident who worked in Illinois, you must file Form IL-1040 and Schedule NR if you received income in Illinois from sources other than wages, salaries, tips, and commissions, or you want a refund of any Illinois Income Tax withheld.
If you received wages, salaries, tips, and commissions from Illinois employers, you are not required to pay Illinois Income Tax on this income. This is based on reciprocal agreements between Illinois and these states."
OP will be a KY resident working in IL for January 2018. Thus, OP fits into this category. After the February move, OP will be an IL resident working in IL, and so reciprocity won't apply, but it's not relevant or needed, either, as OP's employer will certainly be withholding IL state taxes at that point.
posted by praemunire at 3:20 PM on January 4, 2018
If it was me, I would just act as if I moved January 1 and only pay IL tax for all 2018 income and not make any filings in KY. I would pay my 2017 tax to KY and then switch to IL for 2018 without any mid-year complications since your move is so close to Jan. 1 anyway. That's not the technically correct answer and you could encounter problems with it, I suppose, but to me the hassle factor of apportioning some small amount of income for Jan 2018 to KY and then going through the hoops seems not worth. The amount of money at issue for one month of state tax (max 6% rate) is probably not worth KY worrying about - it would be $500 on $100,0000 of income, not factoring in any kind of deductions/exemptions/etc. This all hinges on your risk tolerance, so YMMV.
posted by Mid at 3:54 PM on January 4, 2018 [2 favorites]
posted by Mid at 3:54 PM on January 4, 2018 [2 favorites]
I agree with Mid. Have your employer withhold IL state taxes from the time you begin your job and file 2018 state taxes in iL as a regular full year resident.
posted by TestamentToGrace at 4:30 PM on January 4, 2018
posted by TestamentToGrace at 4:30 PM on January 4, 2018
IANAL, TINLA
You are a resident of the state in which you live, full stop. If you're spending part of the time in Kentucky, you're in a legal gray area, but once you've moved full time, you're an Illinois resident. There is no such thing as "applying for permanent residency" in a state. I'm not aware of any case where such a concept is even legally relevant, outside of some state colleges that charge different in-state and out-of-state tuition rates. For tax purposes, states pretty much take your word on where you are a resident, as long as it seems plausible and they don't have any other reason to believe that you're trying to pull a fast one.
I suppose it's possible that you could claim to be still living in Kentucky for the first month of your employment and dodge some fraction of your Illinois state taxes that way (have I mentioned that I am neither a lawyer nor a tax professional?) but this is likely to create a lot of paperwork and put a target on your back for getting audited by the state tax authorities. Seems unlikely to be worth it.
Much easier to treat your residency in Illinois as beginning on your first day of work, and treating all of your income as being earned in Illinois.
posted by firechicago at 8:46 PM on January 4, 2018 [2 favorites]
You are a resident of the state in which you live, full stop. If you're spending part of the time in Kentucky, you're in a legal gray area, but once you've moved full time, you're an Illinois resident. There is no such thing as "applying for permanent residency" in a state. I'm not aware of any case where such a concept is even legally relevant, outside of some state colleges that charge different in-state and out-of-state tuition rates. For tax purposes, states pretty much take your word on where you are a resident, as long as it seems plausible and they don't have any other reason to believe that you're trying to pull a fast one.
I suppose it's possible that you could claim to be still living in Kentucky for the first month of your employment and dodge some fraction of your Illinois state taxes that way (have I mentioned that I am neither a lawyer nor a tax professional?) but this is likely to create a lot of paperwork and put a target on your back for getting audited by the state tax authorities. Seems unlikely to be worth it.
Much easier to treat your residency in Illinois as beginning on your first day of work, and treating all of your income as being earned in Illinois.
posted by firechicago at 8:46 PM on January 4, 2018 [2 favorites]
Response by poster: Just for some context: My employer's HR gave me two tax forms to choose from regarding state tax: IL resident and Non-Resident, without any explanation, which is why I am confused. I've asked for clarification but I haven't received any.
posted by Young Kullervo at 11:28 AM on January 5, 2018
posted by Young Kullervo at 11:28 AM on January 5, 2018
The simplest thing to do is to go with the IL resident, which is what I would do (per above comments). I think technically it might be more correct to say you are a non-resident for a few weeks - so you could use the non-resident form for a few weeks and then switch over to resident - but my own view would be that nobody is ever going to ask you about this again so why make it more complicated?
posted by Mid at 2:33 PM on January 5, 2018
posted by Mid at 2:33 PM on January 5, 2018
This thread is closed to new comments.
You just have to bring in your lease/other proof of residency to the DMV to get your license/state ID, tags (assuming you have a car) and such.
posted by tivalasvegas at 3:04 PM on January 4, 2018 [1 favorite]