Illinois 1099 Filing Requirements: What You Need to Know

Businesses and individuals who make certain payments to contractors or non-employees may need to file 1099 forms with Illinois. These forms help ensure tax compliance by documenting income that might not otherwise be reported. Failing to file can lead to penalties, making it essential to understand the requirements.

Illinois has specific regulations on which 1099 forms must be filed, applicable thresholds, and deadlines. Understanding these details helps avoid fines and ensures smooth tax reporting.

Who Is Required to File

Businesses in Illinois that pay non-employee compensation, rent, royalties, or other reportable payments must file 1099 forms. This applies to corporations, partnerships, sole proprietors, and certain nonprofits if their payments meet state reporting requirements. Small businesses and independent contractors who hire subcontractors may also need to file.

Illinois generally follows federal 1099 guidelines but has additional state-specific rules. If a business withholds Illinois income tax from a payment, it must file a 1099 form with the Illinois Department of Revenue (IDOR), even if the IRS does not require it. This is particularly relevant for businesses withholding state tax from nonresident contractors. Employers issuing W-2s for employees do not need to file 1099s for those workers.

Out-of-state businesses with a tax nexus in Illinois may also have to file. A tax nexus can be established through a physical presence, employees, or significant economic activity in the state. Illinois uses an economic nexus standard, meaning businesses with substantial sales in the state may be subject to 1099 reporting.

Types of 1099 Forms

Illinois requires businesses to report various types of non-wage payments using different 1099 forms. The most commonly used is Form 1099-NEC, which reports payments of $600 or more to independent contractors, freelancers, and other non-employees. This form has been in use since tax year 2020, when the IRS separated non-employee compensation from the broader 1099-MISC.

Form 1099-MISC is used for payments such as rent, royalties exceeding $10, and prizes or awards not related to employment. It is also required for legal settlements, medical and healthcare payments, and fishing boat proceeds. Unlike the 1099-NEC, which is strictly for services rendered, the 1099-MISC covers a broader range of financial transactions.

For interest and dividend income, financial institutions issue Form 1099-INT and Form 1099-DIV. The 1099-INT reports interest income of at least $10, while the 1099-DIV is used for dividend distributions and capital gains from investments.

Form 1099-R reports distributions from pensions, annuities, retirement plans, and IRAs. While Illinois does not tax retirement income, this form is still required for federal reporting and may be relevant for state tax purposes in cases involving early withdrawals or rollovers.

Thresholds and Exemptions

Illinois generally follows federal thresholds for 1099 reporting but has additional state-specific requirements. Gambling winnings of $1,000 or more from Illinois casinos, lotteries, or racetracks must be reported on Form W-2G and submitted to IDOR, even though federal reporting starts at $600 for most gambling payouts. Payments to nonresident entertainers or athletes performing in Illinois are also subject to state withholding and reporting, regardless of the amount.

Certain payments and entities are exempt from 1099 reporting. Payments to corporations, including S corporations, are generally exempt unless they involve legal or medical services, which must still be reported. Payments made via credit cards or third-party networks, such as PayPal or Stripe, are not reported on a 1099-MISC or 1099-NEC. Instead, they are reported on Form 1099-K, which has a federal threshold of $600 for 2024. Illinois does not require separate state filing for 1099-K forms unless withholding is involved.

Filing Process

Illinois requires electronic filing for businesses submitting more than ten 1099 forms. The Illinois Department of Revenue (IDOR) mandates e-filing through MyTax Illinois, the state’s online tax portal. Those filing fewer than ten forms may submit paper copies, though electronic submission is encouraged to reduce processing time and minimize errors.

The deadline for filing most 1099 forms with Illinois aligns with federal due dates. Form 1099-NEC is due by January 31. Other 1099 forms, such as 1099-MISC and 1099-INT, are due by February 28 if filed on paper and March 31 if filed electronically. Illinois generally follows these deadlines but may impose additional late fees for state-specific noncompliance.

Businesses withholding Illinois income tax from payments reported on a 1099 must also file Form IL-941, the Illinois Withholding Income Tax Return, on a quarterly basis. At year-end, Form IL-945, the Annual Withholding Income Tax Return, reconciles total withholdings reported throughout the year. Failing to file these forms alongside the 1099 submission may result in penalties or interest charges.

Record Retention

Businesses and individuals must keep copies of all submitted 1099 forms and supporting documentation for compliance with Illinois and federal tax regulations. Illinois follows the IRS guideline requiring taxpayers to retain 1099 records for at least three years from the filing date. If a business fails to file a required form or reports incorrect information, the retention period extends indefinitely until the issue is resolved.

Supporting documents, such as payment records, invoices, and withholding statements, should also be preserved. Digital storage is acceptable as long as records remain accessible and unaltered. Businesses using payroll or accounting software should maintain backups in case of data loss.

Penalties and Fines

Failing to comply with Illinois 1099 filing requirements can result in financial penalties. Late submissions, incorrect filings, and failure to provide copies to recipients are all subject to fines.

The state imposes a penalty of $5 per form for late filings if submitted within 30 days of the deadline, increasing to $10 per form if filed after 30 days but before August 1. If a business fails to file entirely or submits incorrect information, the penalty rises to $25 per form. Intentional disregard of filing requirements can result in a fine of up to $50 per form. These penalties are separate from federal fines, meaning noncompliance can result in penalties at both levels.

If Illinois income tax was withheld but not remitted, additional penalties apply. Late payment of withheld taxes incurs a penalty of 2% of the unpaid amount if paid within 30 days, increasing to 10% if unpaid beyond that period. Interest also accrues on outstanding balances. Businesses should implement internal controls to ensure timely and accurate filings to avoid costly penalties.