The Illinois Department of Revenue announced that several changes are being made to the reporting requirements for state income tax withholding (FY 2017-07). Effective for withholding periods on and after January 1, 2017:

— Form IL-941, Illinois Withholding Income Tax Return, has changed. The form requires additional information to implement new legislation and provide better guidance to the taxpayer in calculating and paying withholding tax.

— All withholding taxpayers will be required to file quarterly returns. The annual filing option will no longer be available.

— All withholding taxpayers will be assigned to pay withholding income tax on a monthly or semi-weekly schedule. The annual payment option will no longer be available.

These changes do not go into effect until January 1, 2017. For tax year 2016, taxpayers should continue to file and pay Illinois withholding tax per their assigned 2016 filing and payment schedules.

Changes to Form IL-941

Changes on the 2017 Form IL-941 include:

— Line C is added to Step 2 to verify compliance with the Illinois Secure Choice Savings Program Act (SB 2758). See EY Payroll NewsFlash Vol. 16, #011 (1-8-2015) and the Illinois Secure Choice website for more information.

— Step 4 has been updated to include a section for entering required withholding information for each month of the quarter. Step 4 has entry lines for the amount of income tax withheld based upon the day the compensation was paid (payroll dates). Failure for withholding taxpayers to complete Step 4 could result in the assessment of penalties when the Department is unable to completely process the return. Refer to the Form IL-941 instructions for examples and more information.

— Step 7 includes a line for tax preparers to enter their IRS-issued preparer tax identification number (PTIN). This is required per the State Tax Preparer Oversight Act (HB 5527), enacted in July 2016. Beginning on or after January 1, 2017, all paid income tax return preparers are required to include their PTIN on any tax returns they prepare and file under the Illinois Income Tax Act or on any claim for refund of tax imposed by the Illinois Income Tax Act. Failure to comply may result in assessment of a penalty on the preparer.

Failure complete all required sections including new Line C once the program is implemented and Step 4) of the Form IL-941 could result in assessment of penalties for filing a return that cannot be processed.

All withholding taxpayers must file Form IL-941 quarterly in 2017

Effective with the first quarter 2017 (return due May 1, 2017), all Illinois withholding taxpayers will be required to file Form IL-941 returns quarterly. The annual filing option will no longer be available. Form IL-941 is due by the last day of the month that follows the end of the quarter. If the due date falls on a holiday or weekend, the return is due on the next business day.

Current annual filers will be notified of whether they will be monthly or semi-weekly payers in 2017

According to FY 2017-07, taxpayers that are currently an annual payer will be notified of their change to either a monthly or a semi-weekly payment schedule for 2017. A taxpayer's withholding tax payment due dates are determined by the payment schedule assigned by the Department, based on taxpayer liability and the day employees or others from whom tax is withheld are paid.

All taxpayers will be required to submit withholding tax on a monthly basis they withheld over $12,000 in a quarter. These taxpayers will be required to submit withholding payments electronically on a semi-weekly basis from that point forward.

Monthly withholding payments are due by the 15th day of the month following the month in which the tax was withheld. Semi-weekly withholding payments are due by Wednesday for amounts withheld on the preceding Wednesday, Thursday, or Friday, and by Friday for amounts withheld on the preceding Saturday, Sunday, Monday, or Tuesday.

For more information on withholding taxes in Illinois, see the Department's website.

Ernst & Young LLP insights

Illinois was the first of several states to pass legislation requiring the automatic enrolment of employees in a retirement plan. For the status of states that have passed, or are in the process of passing, similar legislation, go to the Pension Rights Center website.

On August 25, 2016, the US Department of Labor announced that its Employee Benefits Security Administration released a final rule to assist states that create IRA programs for workers who do not have access to workplace savings arrangements. At the same time, in response to public comments, the Department released a proposed rule that could facilitate a limited number of cities and other local governments in also implementing these programs.

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