New IL withholding by pass-through entities

[Burke]

Agree. Most all states are going to this w/holding method to obtain taxes from non-residents who do not file. This also is being applied to sales of properties by non-resident owners. Taxes taken out of gross proceeds. However, I am unfamiliar with the term "composite payments." Would someone explain?

[Nashville]

Composite Payments

If Illinois accepts "composite" payments, that should be the end of it. No withholding.

I believe this new requirement (exists already in many states) is to assure non-residents actually end up filing a tax return. If a composite payment is made on their behalf, then there should be no withholding as Illinois is already getting paid at the maximum tax bracket anyway.

[BOB W]

I just received the IL bulletin regarding this new requirement. As I understand it the pass-through entities will be required to pay the IL income tax for any income reported to non-IL shareholders (Sub S corps), partners or trust beneficiaries. If there are actual cash distributions large enough to cover the taxes, then would the entity "withhold" the tax and distribute the "net" ? If not, then how does the entity "recoup" the tax payment made on behalf of the partner, shareholder, or beneficiary? This seems really bizzar. Am I reading this corretly? Can someone enlighten me?

Many states have been doing this for years. The Corporation does not get reimbursed> the money paid is from the shareholders distribution. K-1 =$100,000. Net check directly to shareholder is $90,000. $10,000 was sent to IL.

[KJ Judd]

First I've heard of this. Although I only have one IL S corporation, this year it should show a profit. Could you be referring to the elective Composite returns that have been around for awhile?

[Art]

I just received the IL bulletin regarding this new requirement. As I understand it the pass-through entities will be required to pay the IL income tax for any income reported to non-IL shareholders (Sub S corps), partners or trust beneficiaries. If there are actual cash distributions large enough to cover the taxes, then would the entity "withhold" the tax and distribute the "net" ? If not, then how does the entity "recoup" the tax payment made on behalf of the partner, shareholder, or beneficiary? This seems really bizzar. Am I reading this corretly? Can someone enlighten me?