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Where Do You Live? The Illinois Tax Edition

And why does it matter? It seems that Illinois residents have been asking this question more often since Illinois increased its individual income tax to five percent. 

How does Illinois define a resident?

Illinois defines "resident" as:

(A) an individual (i) who is in this state for other than a temporary or transitory purpose during the taxable year, or (ii) who is domiciled in this state but is absent from the state for a temporary or transitory purpose during the taxable year.¹ 

A regulation goes on to define "domicile" that shows it is the intent of the taxpayer that leads the residency claim:

Domicile has been defined as the place where an individual has his true, fixed, permanent home and principal establishment, the place to which he intends to return whenever he is absent. It is the place in which an individual has voluntarily fixed the habitation of himself and family, not for a mere special or limited purpose, but with the present intention of making a permanent home, until some unexpected event shall occur to induce him to adopt some other permanent home.²  

The code and regulations make it very clear that there are no hard-and-fast rules that define residency. The best the state has to offer are presumptions — the following two to be specific:

• If an individual spends in aggregate more than nine months of any tax year in Illinois it will be presumed that he is a resident of Illinois.
• An individual who is absent from Illinois for one year or more will be presumed to be a nonresident of Illinois.

So are you an Illinois resident?

If you've truly moved out of state, the answer is you're not an Illinois resident. But if you do something short of abandoning your Illinois residence, there’s a chance Illinois could still continue to deem you a resident. As the old saying goes, home is where the heart is, and the Illinois Department of Revenue sometimes asserts that individuals may claim a "home" just to save taxes.

What happens when I die?

Individuals may be subject to federal and state estate tax where they are domiciled. For Illinois purposes, the Illinois estate tax exemption was $2 million for residents dying before January 1, 2012 and increased to $3.5 million for residents dying in 2012. For residents dying on or after January 1, 2013, the exemption is further increased to $4 million. Fewer Illinois residents will be paying Illinois estate tax.

What does this mean to me?

If you’re an Illinois resident, it means your estate tax has decreased. 

If you’re moving out of Illinois, it means be careful. Illinois rules are very subjective and taxpayers can potentially find themselves being residents of two states. For instance, New York has a hard-and-fast 183-day rule — if you have a New York place of abode and are present in New York more than 183 days, you are a New York resident.³ In a worst-case scenario, an Illinois resident could move to New York and think he's abandoned his Illinois residence since he was in New York more than 183 days. Unfortunately, an auditor could take exception to this and the individual could be considered a resident of both states. Talk about going from bad to worse!

If you have questions or would like assistance in minimizing the likelihood of being a resident of more than one state, contact Jason Parish at jparish@BlackmanKallick.com or 312-980-2959, or your Blackman Kallick representative. Our thanks to Deb Rood for her contribution to this article.

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¹§1501(20)(A)
²Ill. Admin. Code 100.3020(d)
³New York Tax Law Sec. 605(b)(1)

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.