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Employer's Payroll Tax & Filing Requirements for the State of Illinois (IL)
Employers operating a business in Illinois must understand the state's payroll tax responsibilities. Unlike states without income tax, Illinois requires employers to withhold state income tax from employee wages and pay state unemployment insurance taxes.
Understanding these obligations, along with minimum wage laws and reporting requirements, is essential for maintaining compliance with Illinois payroll regulations.
Applicable Illinois Payroll Taxes
In Illinois, employers are responsible for a few key state and federal payroll taxes. This guide will walk you through each of these requirements in detail.
- Illinois is the state that has the state income tax rate of 4.95% and also has state unemployment taxes.
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At the federal level, employers are required to withhold and pay Federal Income Tax, Social Security, and Medicare
(FICA) taxes. - Employers are also responsible for the Federal Unemployment Tax (FUTA).
Understanding these obligations is essential for maintaining compliance and avoiding penalties.
Register for IL state income tax and unemployment tax on your own
Illinois tax agency:
- Illinois Department of Revenue (IDOR) - State income tax withholding
- Illinois Department of Employment Security (IDES) - Unemployment insurance tax
To report and pay state income and unemployment tax withholding in Illinois, employers must register with the Illinois Department of Revenue (IDOR).
Steps to Register with the Illinois Department of Revenue (IDOR) and Department of Employment Security (IDES)
Register via Online
- Step 1: Visit the Illinois Department of Revenue website.
- Step 2: Navigate to the Register section and select Register a New Business (Form REG-1).
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Step 3: Add the basic business information, such as:
- Organization type
- FEIN
- Legal name
- Step 4: Complete the remaining prompts to complete your registration.
After successful registration, you will receive a Taxpayer ID. This number is used for filing and paying taxes with the Illinois Department of Revenue and the Illinois Department of Employment Security.
Illinois New Hire Reporting
Illinois employers are required by federal and state law to report all newly hired and rehired employees to the state's New Hire Reporting Center. This helps enforce child support orders and prevent unemployment and workers' compensation fraud.
Who needs to report?
All Illinois employers (including government agencies, nonprofits, and household employers) must report:
- New hires: Any employee who completes a Form W-4 and will be paid wages.
- Rehires employees: Former employees returning after a break of 60 consecutive days or more.
What information must be reported?
Employers of Illinois must report the newly hired and rehired employees. Here is the information required to report newly hired employees to the Illinois Department of Revenue (IDOR).
Employer information:
- Federal Employer Identification Number (FEIN)
- Employer/Business Name
- Address
Employee information:
- Social Security Number (SSN)
- Name of the Employee
- Address
- Date of hire
- Date of birth (optional but recommended)
How to report new hires in Illinois?
To report newly hired employees, follow the steps given below.
1. Online (Recommended)
- Visit the Illinois New Hire Reporting Center.
- Create an account or log in.
- Enter the required employer and employee details.
- Submit electronically — confirmation is provided immediately.
2. Paper Form (Fax or Mail)
Download and complete the Illinois New Hire Reporting Form from the state website.
-
Mail to:
Illinois New Hire Reporting Center
P.O. Box 19028
Springfield, IL 62794 - Fax to: (217) 782-6744
What are the penalties for not filing a New hire report in Illinois?
If an employer in Illinois fails to submit a New Hire report, they may face the following penalties:
- $25 per person for each new hire, rehire, or independent contractor that is not reported, reported late, or reported with incomplete information.
- $500 per person if the failure to report is due to a conspiracy between the employer and the employee or contractor to avoid reporting.
Illinois State Payroll Tax Requirements
Illinois employers must withhold state income tax from employee wages based on Form IL-W-4 and pay Unemployment Insurance (UI) tax on the first $8,000 of each employee's wages. This section outlines the key state tax requirements that every Illinois employer must follow to ensure compliance.
State Income tax
Illinois has a flat state income tax rate of 4.95% on employee wages. Employers must withhold tax based on the employee's Form IL-W-4 and remit it to the IL Department of Revenue.
State Unemployment Tax
State unemployment taxes are state-level payroll taxes that employers pay to fund unemployment benefits for eligible workers who lose their jobs through no fault of their own.
Who is liable?
Illinois employers are liable for SUI taxes if they meet the following conditions:
- Paid $1500 in wages during a calendar quarter or;
- Had at least one Illinois employee working for any part of the week, for 20 or more different weeks during a calendar year.
Illinois State Unemployment Tax Rate
Employers of Illinois are required to pay state unemployment taxes to provide benefits for the employees. Here are the SUI tax rates offered by the Department of Employment Services (DES):
| Illinois State Unemployment Tax Rate | |
|---|---|
| Taxable Wage Base | $14,250 |
| Tax Rate Range | 0.75% – 7.85% |
| New Employer Rate | 3.65% |
Illinois Minimum Wage Requirements
Illinois sets its own minimum wage, which is higher than the federal rate and adjusts annually based on inflation. Employers must ensure they meet the current state minimum wage for all employees, including a separate, reduced rate for tipped workers—as long as tips make up the difference.
| Wage Type | Illinois Rates (per hour) | Federal Rates (per hour) |
|---|---|---|
| Minimum wage | $15.00 | $7.25 |
| Tipped Minimum Wage | $9.00 | $2.13 |
| Actual Tip Credit | $6.00 | $5.12 |
Overtime Regulations
Illinois follows the federal Fair Labor Standards Act (FLSA) for overtime rules, as the state has no separate overtime law. Non-exempt employees must be paid 1.5 times their regular rate of pay for any hours worked over 40 in a workweek.
Exemption:
Certain employees are exempt from overtime if they meet both the salary and duties tests under the FLSA. In Illinois, this typically includes:
- Executive employees
- Administrative employees
- Professional employees
To qualify for exemption, these employees must earn at least $684 per week on a salaried basis and perform the specific job functions defined by the FLSA.
Illinois Termination Reports
When an employee leaves your company due to resignation, layoff, or termination. Illinois law requires employers to report this information to the Illinois Department of Economic Security (IDES). These reports help the state manage unemployment insurance claims and maintain accurate employment records.
Who needs to report?
All Illinois employers who pay wages subject to unemployment insurance must report terminated employees. This includes full-time, part-time, and seasonal employees.
When is the deadline for the termination report?
Termination reports should be submitted within 20 days after the employee's last day of work. Timely reporting ensures accurate unemployment insurance processing.
How to Report Termination in Illinois
1. Online (Recommended)
- Visit the Illinois Department of Employment Security (IDES) Employer Portal. If you do not have an account, register for one through the portal.
- Navigate to the Employer Services or Unemployment Insurance section.
- Select the appropriate option to submit separation or employment information.
- Enter the required employee and separation details.
- Review the information and submit the report electronically.
2. Mail
Complete the termination report form and mail it to:
Illinois Department of Employment Security
P.O. Box 19300
Springfield, IL 62794-9300
3. Fax
You can also fax the completed report to: (217) 785-9877
Illinois State Tax Payments
Illinois State Withholding Payments
Illinois employers are required to withhold state income tax from employees' wages and remit these withholdings to the Illinois Department of Revenue.
| Quarter | Filing Deadline |
|---|---|
| Quarter 1 (January - March) | April 30 |
| Quarter 2 (April - June) | July 31 |
| Quarter 3 (July - September) | October 31 |
| Quarter 4 (October - December) | January 31 |
Methods to deposit Illinois State income tax withholding taxes
To deposit your state withholding taxes, you can use various payment methods, which include:
-
Online (Recommended):
- Visit the MyTax Illinois website
- Complete Form EFT-1 (Authorization Agreement for Certain Electronic Payments)
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Mail: Complete Form IL-501 and mail it to:
Illinois Department of Revenue
PO Box 19447
Springfield, Illinois 62794-9447
Illinois State Unemployment Tax Payments
Illinois employers must file Unemployment Tax and Wage Reports Form UI-3/40, and make corresponding tax payments to the Illinois Department of Economic Security (IDES) on a quarterly basis. The due dates are as follows:
| Quarter | Filing Deadline |
|---|---|
| Quarter 1 (January - March) | April 30 |
| Quarter 2 (April - June) | July 31 |
| Quarter 3 (July - September) | October 31 |
| Quarter 4 (October - December) | January 31 |
Methods to deposit Illinois State unemployment tax withholding taxes
To deposit your state Unemployment taxes, you can use various payment methods, which include:
- Online (recommended): To pay your unemployment tax payment, register with the Illinois TaxNet by electronic fund transfer using a credit or debit card.
-
Mail: Complete Form IL-501 and mail it to:
Illinois Department of Revenue
PO Box 19447
Springfield, IL 62794-9447
Illinois State Filings
Quarterly State Income Tax Filings
Form IL-941, Withholding Income Tax Return: A quarterly tax return used by Illinois employers to report the state income tax withheld from employees' wages. Even if no tax was withheld for a quarter, the form must still be filed.
Deadline: Quarterly withholding tax returns are due by the last day of the month following the end of the calendar quarter.
| Quarter | Filing Deadline |
|---|---|
| Quarter 1 (January - March) | April 30 |
| Quarter 2 (April - June) | July 31 |
| Quarter 3 (July - September) | October 31 |
| Quarter 4 (October - December) | January 31 |
Form IL-W-2, Wage and Tax Statement: This form reports wages paid and Illinois income tax withheld for each employee during the year. Employers must provide copies to employees and submit them to the Illinois Department of Revenue (IDOR).
Deadline: The deadline for filing the annual Form IL-W-2 is January 31.
Quarterly State Unemployment Tax Filings
Form UI-3/40, Employer's Contribution and Wage Report: A quarterly report submitted to the Illinois Department of Employment Security (IDES) that details employee wages and employer unemployment insurance (UI) contributions. This ensures accurate unemployment insurance records and benefit calculations.
Deadline: Unemployment taxes are due by the last day of the month following the end of the calendar quarter.
| Quarter | Filing Deadline |
|---|---|
| Quarter 1 (January - March) | April 30 |
| Quarter 2 (April - June) | July 31 |
| Quarter 3 (July - September) | October 31 |
| Quarter 4 (October - December) | January 31 |
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