Payroll tax in Illinois: What employers need to know [Updated 2024]

Illinois has a reputation for its high taxes—but is it just residents in the state who get stuck with high tax bills, or do businesses feel the pinch, too?

Whether you run a small business or a large corporation, taxes are part of your life. From federal income tax to US FICA taxes like social security tax and Medicare tax, there’s a lot for businesses to stay on top of—and then there are state taxes, which vary from state to state, making it crucial to understand the local taxes where all of your employees live.

Illinois’ state payroll tax system is less complex than some other states, with a flat rate for personal income tax. Still, there are specific requirements for due dates and filing frequencies that employers have to be aware of—because it’s your responsibility to know the rules and follow them to avoid penalties for late or incorrect filing.

If you have employees in Illinois, you’ll need to know the types of payroll taxes, their rates, who owes what, and when. Let’s get started.

The 2 Illinois payroll taxes

The state of Illinois has two payroll taxes administered by two state agencies: State unemployment insurance tax is administered by the Illinois Department of Employment Security, and withholding tax (also known as personal income tax) is administered by the Illinois Department of Revenue.

Employers are required to withhold payroll taxes in Illinois if they are required to withhold (or voluntarily withhold) federal income tax from payments for:

• Employee compensation paid in Illinois
• Gambling or lottery winnings paid in Illinois to an Illinois resident
• Unemployment paid to an Illinois resident who has asked to have taxes withheld
• Purchases of rights to Illinois lottery winnings
• Other income, like interest, dividend, or retirement income

Employers are also required to report new hires to the state within their first 20 days on the job, which is when their payroll tax obligation begins.

Below, we’ll cover the two types of payroll tax in Illinois: what they are, who is responsible for paying each one, the maximum amount you might need to pay, and other details you might need to know.

Unemployment insurance tax

Unemployment taxes provide temporary payments for people who are unemployed through no fault of their own (for example, because of layoffs). The Illinois Department of Employment Security determines the annual wage base and assigns a tax rate to each employer in the state each year. The current tax rate for new employers is 3.525%.

Personal income tax

Personal income tax (also known as PIT or withholding tax) is paid by Illinois residents and nonresidents who work in the state (unless they live in a state that has a reciprocity agreement with Illinois—more on that in the FAQ section below).

Illinois State income tax withholding is fairly straightforward—the state uses a flat income tax rate for all residents, regardless of their income.

To calculate how much income tax to withhold, employers should reference Booklet IL-700-T: Illinois Withholding Tax Tables. The booklet offers several methods for calculating how much tax you should withhold. Note that you’ll need to gather some information, regardless of the method you use:

• Your employees’ wages (annual or hourly wage, adjusted so you have their gross and net pay for the pay period)
• Their filing status
• Their allowances, which you can find on their Form IL-W-4 (based on their dependents, pre-tax deductions, and other factors)

But navigating payroll tax laws on your own—and doing the math by hand—can be overwhelming. Instead, consider Rippling’s payroll software. It automatically calculates your taxes (no withholding tables required) and submits your tax forms and payments on your behalf. Rippling also monitors both federal and state laws and regulations, ensuring total compliance. Rippling’s PEO can even register and maintain your state tax accounts for you, so almost the entire tax process is automated

Payroll tax due dates in Illinois

The two different types of taxes have different due dates.

For withholding tax, taxpayers are assigned a payment schedule by the Department of Revenue—either semi-weekly or monthly. All new employers are assigned the monthly payment schedule, but if you exceed $12,000 in withholding tax in a quarter, you’re responsible for moving onto the semi-weekly schedule beginning the following quarter.

• For semi-weekly filers:
• If employees are paid on Wednesday, Thursday, or Friday, withholding is due the following Wednesday.
• If employees are paid on Saturday, Sunday, Monday, or Tuesday, withholding is due the following Friday.
• For monthly filers: Withholding is due on the 15th of each month for the prior month.

Unemployment tax is due quarterly—employers must file their wage reports and pay their contributions in the month after the end of each calendar quarter:

• Q1 (January, February, March): Due April 30
• Q2 (April, May, June): Due July 31
• Q3: (July, August, September): Due Oct. 31
• Q4: (October, November, December): Due Jan. 31

How to submit payroll taxes in Illinois

Before you can submit payroll taxes in Illinois, you need to do a few things:

• Obtain an employer identification number (EIN) from the IRS.
• Have each of your employees fill out a Form IL-W-4.
• Register with the state using the MyTax Illinois portal.

Once those steps are complete, you’re ready to start making tax payments. You have a few options for doing so. Here’s what you need to know.

File electronically

The fastest and easiest way to submit payroll taxes in Illinois is to file and pay them electronically—and if you’re a semi-weekly filer, you’re required to file your employees’ income tax returns and pay their withholding tax this way.

Electronic tax filing and payment is extremely straightforward in Illinois—once your business is registered, all you need to do is sign in to the MyTax Illinois portal. From your dashboard, you’ll be able to see any business taxes you owe, with links to file returns and make payments.

File by mail

As of the 2018 tax year, most employers in Illinois are required to file and pay their taxes electronically, but you can submit a waiver request if you’d like to pay by mail. If it’s approved, you’ll use forms IL-501 and IL-941 to pay your withholding tax—just note that Form IL-941 is a calendar year form that’s updated annually, so be sure you’re using the right version when you download it to file.

Fill out the forms and submit them with a check for the correct amount of withholding tax to:

Revenue Division

Illinois Department of Employment Security

33 South State Street

Chicago, Illinois 60603

To pay your unemployment tax by mail, use Form UI-3/40. Mail it with a check for the correct amount for the contributions you owe to:

IDES P.O. Box 19300

Springfield, Illinois 62794-9300

Rippling’s full-service payroll software

While Illinois makes it easy to file and pay online, there’s another way that’s even easier: Rippling. Rippling’s payroll software practically runs itself, from automating all your compliance work to filing federal and Illinois state payroll taxes at the right time, with the right agencies.

FAQs about Illinois payroll taxes

What if an employee works in Illinois but lives in another state?

Illinois has reciprocity agreements with Wisconsin, Michigan, Iowa, and Kentucky. That means that if a resident of one of those states works in Illinois, they’re exempt from Illinois withholding taxes—you’ll withhold and pay income taxes for their home state instead.

Are there local tax laws in Illinois?

Illinois only has payroll taxes at the state level. The state also imposes a 6.25% sales tax, and municipalities can add up to 4.75% in local sales taxes.

Can your tax returns be audited in Illinois?

Yes, the Illinois Department of Revenue can audit your tax returns to check for payroll tax compliance, among other things.

Are nonprofit organizations subject to payroll taxes in Illinois?

No. Nonprofits in Illinois can apply for exemptions from state sales tax and real estate taxes on property they own, but they are responsible for all employment taxes on wages paid to their employees.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.