You should have your employer withhold taxes for Illinois. The income you earn in Illinois is fully taxable by Illinois. ALL your income, including that from Illinois, is taxable by your home state of Indiana. But Indiana will give you a credit on its tax return for the taxes paid to Illinois. Since Illinois' tax rate is higher than Indiana's, the credit should significantly reduce or possibly even eliminate your Indiana tax due.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
