Illinois Payroll Tax Guide 2023: Laws, Taxes and more

How Illinois payroll is set up will differ by business and industry. The main decisions are:

• Payment method (direct deposit or paper check)
• Pay periods (weekly, bi-weekly, semi-monthly, or monthly)

Learn more about managing your company’s payroll in-house or with a service.

Best completed during the onboarding of new employees, businesses must collect the following forms for all employees in order to be compliant with state and federal requirements:

• W-4 – Employee’s Withholding Certificate
• I-9 – Employment Eligibility Verification
• Direct Deposit Authorization (if applicable)
• IL-W-4 – Employee’s and Other Payee’s Illinois Withholding
  
  

Note: All employees must complete their I-9 verification no later than their first day of work. I-9 forms must be stored for 3 years after the date of hire, 1 year after employment ends, or whichever is later.

Established by the federal government under IRC section 3121(a), the Federal Insurance Contributions Act (FICA) requires all businesses to deduct federal taxes from each paycheck. Unlike individual taxes, FICA is paid by both the employer and employer, typically at a rate of 7.65% of taxable wages over to the IRS.

Unless specifically excluded by statute, all forms of payment (cash, check, deposit, etc) are considered taxable. The same rule applies for types of base pay, such as hourly, weekly, piecework, and more.

While nearly all forms of payment are included in FICA’s policies, the following types of compensation are exempt from Illinois payroll:

• Wages paid after an employee’s death
• Wages paid to disabled employees who collect Social Security disability insurance benefits
• Expense reimbursements for driven mileage
• Retirement contributions by employer

Unemployment Insurance is a form of financial aid that assists eligible workers while seeking employment. Typically ordered on the state level, the federal government can administer unemployment insurance during periods of crisis, such as the COVID-19 pandemic.

Similar to other Illinois payroll taxes, all businesses contribute to the funding of unemployment insurance through their tax contributions. For Illinois, the following rules apply to state Unemployment Tax: 

• Every employer in the state of Illinois must register with the Illinois Department of Employment Security (“IDES”), as well as pay and file unemployment insurance.
• For-profit employers are liable for Illinois Unemployment Taxes after paying $1,500 in wages in a single calendar quarter OR employing at least one person for more than 20 weeks in a calendar quarter.
• Illinois Unemployment Tax rules align entirely with the Federal Unemployment Insurance Tax (FUTA). 
• Different rules, not covered here, apply to agriculture and domestic workers, and employees of some non-profit organizations.

In 2022, the Illinois state unemployment insurance (SUI) tax rate will range from 0.725% to 7.1%, with a maximum taxable wage base of $12,960. This year’s guidelines saw a modest increase from 2021, which had a range of 0.675% to 6.4%; the taxable wage base did not change from 2021 to 2022.

Note: employers are required to post a notice regarding state unemployment claims in a common space for all employees to see. The poster provides basic information on how to file an unemployment claim and what kinds of benefits are available.

Entering 2022, the state of Illinois’s minimum wage is set at $12 per hour, just in the middle of a progressive yearly increase to $15 per hour.

While the law sets a minimum compensation rate, there are a few exceptions:

• New employees (under 90 days of employment) over the age of 18 can be paid up to 50 cents less per hour.
• Minors (under 18) working under 650 hours per year can be paid ~75% of the current hourly minimum wage.
• Employees in gratuity-based industries can be paid 60% of the current hourly minimum wage.
• Full-time hourly employees that exceed 40 hours in a work week are due compensation at time and one-half the regular rate.

Although the state’s minimum wage is set at $12 per hour for 2022, some local municipalities chose to set their own higher standards. These policies apply solely to Illinois payroll employees within their own jurisdictions.

The following table highlights all localities in the state of Illinois with their own minimum wage laws:

While businesses do have the opportunity to choose their payment schedule, they still must follow state guidelines set by 820 ILCS 115/4:

• Monthly Pay Periods: wages must be paid on or before 21 calendar days after the end of the period in which they were earned. As defined by the Fair Labor Standards Act of 1938, monthly pay periods are only allowed for executive, administrative, and professional employees.
• Semi-monthly/biweekly: wages must be paid no later than 13 calendar days after the end of the period in which they were earned.
• Weekly: wages must be paid no later than 7 calendar days after the end of the period in which they were earned.
• Daily: wages must be paid no later than 24 hours after the end of the period in which they were earned.

Complementing the federal government’s Fair Labor Standards Act, Illinois payroll outlines all requirements and regulations in regards to overtime work and pay. 

Like the FLSA, Illinois overtime law states that all non-exempt employees are entitled to time and one half pay for any work that occurs after exceeding 40 hours in a workweek. For example, an employee with a base pay of $15.00/hour would be paid an overtime rate of $22.50 per hour.

Along with standard Illinois payroll overtime regulations, the state does outline employees who are exempt from standard overtime pay policies:

• Professional, administrative, or executive employees, defined by the Fair Labor Standards Act
• Commissioned employees, defined by the FLSA, Section 7(i).
• State employees for related agencies, municipalities and units of local government and school districts
• Laborers who exchange hours in accordance to a workplace exchange agreement
• Agricultural employees
• Employees of certain educational or residential child care institutions
• Dealership salesmen and mechanics that sell or service vehicles (cars, trucks or farm implements) 
• Certain radio/television employees in a cities with populations under 100,000
• Motor carrier employees, including truck drivers, loaders and others who have safety related duties (maximum hours of service set by U.S. Department of Transportation)
• Computer employees (ie. programmers, engineers, systems analysts) with a minimum hourly rate of $27.63/hour or minimum salary of $684/week.

Unlike federal law, the Illinois state wage laws do not specify overtime exemptions for highly compensated employees ($100,000+/year).

In 1998, state and federal laws began requiring all employers to report all new and rehired employees. For Illinois employers, these reports are sent to the state Directory of New Hires.

In the state of Illinois, employers are required to report all new hires within 20 calendar days of their individual start date. In general, any employee that fills a W-4 should be reported. To be specific, employers must report the following types of new hires:

• Full-time employees
• Part-time employees
• Temporary (seasonal) employees
• Any employee returning to work who has been off the payroll for 60 consecutive days or more within the same company due to:
• Lay-off
• Furlough
• Medical leave
• Leave of absence
• Separation from work

How to Report New Hires

Per the state of Illinois, there are five methods for reporting new hires:

1. Completing and submitting the New Hire Reporting form provided by the Illinois Department of Employment Security (via first-class mail or fax);
2. Submitting copies of the employee's W-4 form, with all information completed legibly, including the employer information (via first-class mail or fax);
3. Submitting a separate listing of new employees, with the required data (via first-class mail, fax, or e-mail);
4. Registered employers can login to complete the online New Hire Reporting Web form or upload a file; or
5. Choose to submit New Hires using a secure file transfer protocol (sFTP). To use this method, please call (888)-245-1938 to request login credentials and to receive the specified file layout for this method of submission.

After filling the appropriate New Hire forms, businesses can submit their reports in three ways:

• E-mail: DES.NHire@illinois.gov
• Fax: 217-557-1947 (24-hour fax line)
• First class mail:

Illinois Department of Employment Security
33 S State Street
10th Floor; Chicago, IL 60603

Required Information for New Hire Reports

Per the state of Illinois, the following information is required on New Hire Reports:

• Employer's Federal Employer Identification number (FEIN)
• Employer's company name - name associated with the FEIN
• Employer's address - address associated with the FEIN
• Employee's Social Security number
• Employee's name (specify first, middle and last)
• Employee's home address
• Date of hire (the employee's first day of work for pay)

For Illinois payroll, Paid Time Off (or vacation time) is not required by law, though it is a commonly offered benefit.

According to the Illinois Wage Payment and Collection Act, earned vacation time must be given to the employee, even if they end their employment. This applies to all earned PTO, even if it is less than the full amount. According to the WPCA, earnings must be paid by the next regularly scheduled payday.

To enforce this requirement, the Illinois Department of Labor handles all complaints and subsequent disciplinary actions.

As an important note, while the majority of vacation policies are in writing, unwritten policies can still be enforced in court.

Like businesses in every state, employers in Illinois must comply with the federal Family and Medical Leave Act (FMLA). Unique to the state, however, are additional leave rights, which make more employees eligible for unpaid leave.

Employers must adhere to the FMLA if they have at least 50 employees for 20 or more weeks in the current calendar year.

Federal FMLA Rights

According to the Family and Medical Leave Act, all employees are eligible to receive 12 weeks of unpaid leave for serious injury or illness, to care for ailing family members, to prepare for a family member’s military service, or to care for newborns or newly adopted children.

Employees are eligible for FMLA-related leave if:

• They have worked at least 1,250 hours during the previous work
• They work at a location with at least 50 employees (within 75-mile radius)
• They have worked at the company for at least one year

Illinois payroll employees who use FMLA leave are entitled to continue their health insurance while on leave, as well as are entitled for reinstatement upon return.

Illinois Family and Medical Leave Laws

In addition to the guidelines provided by the federal government, the state of Illinois provides additional rights to employees in regards to family and medical leave:

Domestic Violence Leave

Businesses with 50 or more employees must allow eligible employees to take upt to 12 weeks of leave if they, a family member, or a household member are victims of domestic or sexual violence. This 12 week period can be used for:

• Seeking medical treatment
• Receiving professional counseling
• Obtaining services from victim support organizations
• Seeking legal assistance
• Planning to improve victim safety, including relocation

Military Family Leave

For businesses with at least 15 employees, laborers can receive unpaid leave in preparation for a spouse or child’s military deployment.

Companies with at least 50 employees must provide at least 30 days of leave, while smaller businesses must provide 15.

Small Necessities Law

Illinois businesses with more than 50 employees must provide parents and guardians of school-aged children up to eight hours of unpaid leave in a given school year. Eligible employees may use this leave for classroom activities and school conferences that cannot be rescheduled outside of work hours.

On a given day, Illinois payroll employees can use a maximum of four hours of unpaid leave for school-related circumstances.

In the state of Illinois, employers are required to give 1 hour of sick leave for every set of 40 hours worked, with a maximum of 40 accrued hours per year. At the conclusion of each 1 year period, employees are not required to pay for unused sick days.

Additionally, the Employee Sick Leave Act (Public Act 99-0841) gives employees the right to use their accrued sick leave to care for certain family members. 

Specifically, this bill requires employers to allow employees to use their sick leave “for absences due to an illness, injury, or medical appointment of the employee’s child, spouse, [domestic partner], sibling, parent, mother-in-law, father-in-law, grandchild, grandparent, or stepparent, for reasonable periods of time as the employee’s attendance may be necessary, on the same terms upon which the employee is able to use sick leave benefits for the employee’s own illness or injury.”

Every Illinois employer is required to provide employees with sexual harassment prevention training, in compliance with Section 2-109 of the Illinois Human Rights Act (“IHRA”). Training must equal or exceed the minimum standards set forth in Section 2-109(B). Employers may also use the Illinois Department of Human Rights sexual harassment prevention training model.

These trainings must be complete by the end of each calendar year for every employee working in the state of Illinois. Restaurant and bar employees are required additional sexual harassment prevention training, outlined by Section 2-110 of the IHRA.

As part of our extensive Illinois payroll services, CAVU HCM offers this training course for all Illinois employees and employers.

Designed to prevent the exploitation of minors, child labor laws have been passed on the state and federal level.

For minors below the age of 16 in the state of Illinois, employers must have on file a Work Permit. Generally, minors can receive this documentation through their schools, typically a guidance counselor or school administrator. Age certification is not required in the state of Illinois for minors 16 to 20, but is required to be provided upon request.

The state of Illinois sets working hour restrictions to limit how much a minor can work per day and per week. The following guidelines are provided by the state of Illinois:

• Minors under 16: 8 hours per day, 48 hours per week, 6 days per week are permitted when school is not in session.
• Minors ages 16 and 17: No restrictions.

In addition to total hours, the state outlines night work restrictions for minors as well:

• Minors under 16: Work is prohibited from 7pm to 7am (9pm June 1 to Labor Day), with additional exceptions.
• Minors ages 16 and 17: No restrictions.

In line with work hour restrictions, the state prevents minors from working in hazardous roles such as in sawmills, construction sites, or where alcohol is served or sold (except as a busboy or at a park.)

Below is a comprehensive list of relevant payroll tax forms for the state of Illinois. For information on filing W-2 and 1099 forms, click here.

Below is a list of the most common requested federal payroll tax forms. For a comprehensive list, click here.

For the state of Illinois, withholding tax returns are required to be filed on a quarterly basis – excluding exemptions by the IDOR.

For quarterly filings, Form IL-941 is due on the last day of the month that follows the end of the quarter. See the table below for exact dates:

For Illinois payroll, Unemployment Tax reports and payments are due a month after the close of each calendar quarter, reports and payments are due by the following dates for the preceding calendar quarter. 

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