Illinois (IL) State Withholding Information
Payroll in Illinois is pretty straightforward as compared to some more complicated. If you have experience processing Federal payroll taxes, Illinois should not be too difficult to understand. Even if you don’t, there are relatively few taxes and forms to be worried about. So let’s get started with a discussion on running payroll in Illinois.
Calculating Illinois (IL) State Withholding Tax
The first thing to get when running payroll in Illinois is to register your business with the appropriate government entities. The two main ones are the Illinois Department of Revenue and the Illinois Department of Employment Security. The Illinois Dept of Revenue covers their Illinois state Income Tax Withholding while the Dept of Employment Security deals with Illinois Unemployment tax. You will need to register your company with both to get an ID number to file returns and pay taxes. Once you have that ID, you will use that to file and pay until your company closes.
As for the taxes themselves, we can start with the Illinois Withholding Tax. This tax shortened as Illinois WH, is paid by the employees only. There is no company portion of the tax. This tax is used to pay your Illinois Income Tax at the end of the year. If you overpay WH, you will get a refund while under-paying means you need to pay more at the end of the year. To calculate the tax, employees need to supply an Illinois W-4 to their company so the right parameters can be used. Illinois also has a reciprocal agreement with several nearby states. That means residents of Illinois who work in the following states: Iowa, Kentucky, Michigan, or Wisconsin do not need to pay withholding tax to those states. They are only liable for Illinois taxes even though they work elsewhere.
Apart from Illinois Withholding, the only other two taxes are the Illinois Unemployment Tax, and the Fund Building tax. These taxes are paid by the company and not by the employee. They’re also different from the withholding in that they are fixed rates with wage limits; they’re not calculated dynamically each payday. The default rate for the UI and Fund Building for new companies is 3.95% in 2024. The wage limit is also $13,590 for 2024. The tax rate for these taxes is per company, so different companies can pay different tax amounts. One interesting note is that if your taxable wages are below $50k, you could pay a different UI tax rate than expected. If your listed rate is higher than 5.4%, but if your taxable wages are below $50k; you only need to pay 5.4%. If the taxable wages are greater than $50k; you would pay whatever listed rate you have.
Paying Illinois (IL) State Withholding Tax
For paying the three taxes above, they generally follow the Federal schedule. Withholding taxes are paid Monthly or Semi-Weekly depending on your prior tax liability. The UI and Fund Building taxes are paid quarterly.
Reporting Illinois (IL) State Withholding Tax
Finally, for reporting the taxes, there are two separate forms. The Illinois Form Illinois-941 is used to report your Illinois Withholding tax to the state. In addition to the Illinois-941, there is also a Schedule P that reports the individual withholdings as well, not just the total. For UI and Fund Building those taxes are reported on Illinois UI-3/40. These forms are pretty standard with the totals and the individual employee contributions again.
Illinois payroll can seem challenging at first, but once you have completed registration, it is not too difficult to process. Sign up for our Managed Service at PaycheckManager to make handling your Illinois payroll even easier.
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