​​​Wisconsin residents who work in Illinois are generally not subject to Illinois income tax on wages earned in Illinois due to a reciprocity agreement. The reciprocity agreement only applies to compensation paid to an employee for personal services. It does not apply to other types of income, including unemployment compensation.

A Wisconsin resident who had been employed in Illinois may be receiving unemployment compensation from the Illinois Department of Employment Security. Illinois law provides that unemployment compensation paid by the Illinois Department of Employment Security to a nonresident of Illinois is taxable to Illinois.

The unemployment compensation paid to the Wisconsin resident may also be taxable to Wisconsin. Under Wisconsin law, a Wisconsin resident who is required to pay an income tax to both Wisconsin and Illinois on the unemployment compensation from the Illinois Department of Employment Security may be able to claim a credit for tax paid to Illinois. The credit is allowed to the extent the unemployment compensation is taxable to both states. Wisconsin may tax all, a portion, or none of the unemployment compensation, depending on income level. The amount of unemployment compensation taxable to a Wisconsin resident is determined using the Unemployment Compensation Worksheet found in the Wisconsin Income Tax Form 1 Instructions.

March 27, 2013