Illinois Payroll Taxes: The 2026 Employer Guide
Illinois asks employers for two things — withhold 4.95% income tax from wages, and pay unemployment insurance contributions on the first $14,250 each worker earns. This guide covers registration, rates, deposit schedules, forms and the deadlines that matter.
Two state obligations, four federal ones
| Tax | Who pays | Rate | Wage base |
|---|---|---|---|
| Illinois income tax withholding | Employee | 4.95% | All wages |
| Illinois unemployment insurance | Employer | 0.750% – 7.050% | $14,250 |
| Federal income tax withholding | Employee | Per Publication 15-T | All wages |
| Social Security | Both — 6.2% each | 12.4% total | $184,500 |
| Medicare | Both — 1.45% each | 2.9% total | All wages |
| Additional Medicare | Employee only | 0.9% | Above $200,000 |
| FUTA | Employer | 6.0%, usually 0.6% net | $7,000 |
The distinction between withheld and paid matters legally as well as financially. Withheld income tax and the employee's FICA share are trust fund taxes — money held on the employee's behalf. Failing to remit them exposes responsible individuals to personal liability, which is not true of the employer's own share.
Registering as an Illinois employer
- Get a federal EIN from the IRS. It is free, takes minutes online, and everything else depends on it.
- Register through MyTax Illinois using Form REG-1. One registration opens both your IDOR withholding account and your IDES unemployment insurance account.
- Collect Form W-4 and Form IL-W-4 from every new hire before their first payday. Without an IL-W-4 you withhold as though zero allowances were claimed.
- Report the new hire to the Illinois New Hire Directory within 20 days of the start date.
- Obtain workers' compensation insurance. Illinois requires it for virtually every employer with even one employee.
- Post the required notices — minimum wage, Paid Leave for All Workers, unemployment insurance, workers' compensation, discrimination and, since 2024, the mandatory workplace notices under the Illinois Human Rights Act.
Illinois income tax withholding
The calculation follows Booklet IL-700-T and is refreshingly simple: subtract the employee's allowances from wages, multiply by 4.95%. Line 1 allowances on Form IL-W-4 are worth $2,925 each in 2026; Line 2 allowances are worth $1,000 each.
An employee earns $2,500 semi-monthly and claims two Line 1 allowances. Annual allowance value is $5,850, so $243.75 comes off each semi-monthly paycheck before tax. Illinois withholding is ($2,500 − $243.75) × 4.95% = $111.68.
Deposit schedules
| Schedule | Who | Due |
|---|---|---|
| Monthly | Withheld $12,000 or less in the lookback period | 15th of the following month |
| Semi-weekly | Withheld more than $12,000 in the lookback period | Wednesday after a Wed–Fri payday; Friday after a Sat–Tue payday |
Forms and deadlines
| Form | Purpose | Deadline |
|---|---|---|
| IL-941 | Quarterly withholding return | Last day of the month after the quarter ends |
| IL-W-3 | Annual withholding reconciliation | January 31 |
| W-2 to employees | Wage and tax statement | January 31 |
| W-2 to Illinois | Electronic filing through MyTax Illinois | January 31 |
| UI-3/40 | Quarterly unemployment contribution and wage report | Last day of the month after the quarter ends |
| Federal Form 941 | Quarterly federal return | Last day of the month after the quarter ends |
| Federal Form 940 | Annual FUTA return | January 31 |
Illinois unemployment insurance contributions
Unemployment insurance is the only Illinois payroll tax that is a real cost to the business rather than a pass-through. Rates are experience-rated: the more former employees draw benefits against your account, the higher your rate climbs, within the statutory band.
| Item | 2026 | 2025 |
|---|---|---|
| Taxable wage base | $14,250 | $13,916 |
| Minimum contribution rate | 0.750% | 0.850% |
| Maximum contribution rate | 7.050% | 8.650% |
| New employer rate | 3.350% | 3.950% |
| State experience factor | 102% | 114% |
| Fund building rate | 0.550% | 0.550% |
Because the wage base is low, the annual cost per employee is capped and predictable: at the new employer rate of 3.350%, the maximum is $477.38 per employee per year. At the top experience rate of 7.050% it is $1,004.63. IDES issues rate notices in December for the following year, and they are worth reviewing — a rate that has jumped usually reflects benefit charges you may be able to contest.
Employees pay nothing toward unemployment insurance in Illinois. If a worker asks why they cannot see it on their pay stub, that is the answer. The unemployment benefits calculator shows the other side of the system.
Federal obligations on top
FICA. Withhold 6.2% Social Security up to $184,500 and 1.45% Medicare with no cap, then match both. The Additional Medicare Tax of 0.9% above $200,000 is withheld from the employee only and is not matched.
FUTA. 6% on the first $7,000 of each employee's wages, reduced by a credit of up to 5.4% for timely state unemployment payments — a net 0.6%, or $42 per employee per year. The credit is reduced in states with outstanding federal loans, so check the current status before assuming 0.6%.
Federal withholding. Follow Publication 15-T using each employee's Form W-4. The percentage method for automated payroll systems is what payroll software uses and what the paycheck calculator on this site replicates.
Illinois employment rules that touch payroll
- Minimum wage: $15.00 statewide in 2026; $9.00 for tipped employees; $13.00 for workers under 18 with fewer than 650 hours. Chicago is $17.05 and suburban Cook County $15.40 from July 1, 2026.
- Overtime: 1.5× the regular rate past 40 hours in a workweek, under the federal FLSA. Illinois has no daily overtime rule.
- Pay frequency: at least semi-monthly for most employees; monthly is permitted for executive, administrative and professional staff.
- Paid Leave for All Workers Act: one hour of paid leave per 40 hours worked, up to 40 hours a year, usable for any reason. Chicago and Cook County have their own ordinances.
- Final pay: due at the time of separation where possible, and no later than the next regularly scheduled payday.
- Permitted deductions: only where required by law, for the employee's benefit, authorized in writing at the time, or under a valid court order such as a wage deduction order.
- Pay transparency: since January 2025, employers with 15 or more employees must include a pay scale and benefits description in job postings.
Illinois applies a strict test to independent contractor status, and the Employee Classification Act creates specific penalties in construction. Misclassification exposes a business to back withholding, unpaid unemployment contributions, penalties, interest and overtime claims. When the relationship looks like employment, treat it as employment.
What an Illinois employee actually costs
| Item | Annual cost |
|---|---|
| Gross salary | $60,000.00 |
| Social Security, employer share 6.2% | $3,720.00 |
| Medicare, employer share 1.45% | $870.00 |
| FUTA at 0.6% on $7,000 | $42.00 |
| Illinois unemployment insurance at 3.350% on $14,250 | $477.38 |
| Total employer cost | $65,109.38 |
That is roughly 8.5% above salary before workers' compensation premiums, health insurance, retirement matching or paid leave. A common planning figure of 1.25 to 1.4 times salary for fully loaded cost holds up well in Illinois.
People also ask about Illinois payroll taxes
Illinois imposes two payroll obligations on employers. The first is income tax withholding at 4.95%, which you withhold from employee wages and remit — it is the employee's money, not yours. The second is state unemployment insurance, which is a genuine employer cost paid entirely by the business on the first $14,250 of each worker's wages in 2026. On top of those sit the federal obligations: the matching 7.65% FICA share and FUTA at 6% on the first $7,000, usually reduced to 0.6% after the state credit.
Experience-rated employers pay between 0.750% and 7.050% in 2026. The Illinois unemployment insurance taxable wage base for 2026 is $14,250, so contributions stop once an employee has earned that much in the calendar year. A new employer pays 3.350% — or 3.450% in the administrative support and waste management sector — until it has enough claims history for its own experience rate. The 2026 state experience factor is 102%, down from 114% in 2025, and the fund building rate is 0.550%.
Register once through MyTax Illinois using Form REG-1, which covers both the Illinois Department of Revenue withholding account and the IDES unemployment insurance account. You will need a federal EIN first, obtainable free from the IRS. Register before your first payday — Illinois requires it, and unregistered employers who withhold tax without an account create reconciliation problems that take months to clear.
Your schedule depends on how much you withhold. Monthly depositors — those who withheld $12,000 or less in the lookback period — pay by the 15th of the following month. Semi-weekly depositors, over that threshold, pay by the Wednesday after a Wednesday-to-Friday payday and by the Friday after a Saturday-to-Tuesday payday. Everyone files Form IL-941 quarterly, by the last day of the month following the quarter's end, and Form IL-W-3 annually.
No. No Illinois municipality or county levies an income tax on wages, Chicago included, so there is no local withholding to administer. This makes Illinois payroll considerably simpler than Ohio, Pennsylvania or Indiana, where local jurisdictions each have their own rates and filings. Local ordinances in Illinois affect the minimum wage and paid leave, not withholding.
If they live in Iowa, Kentucky, Michigan or Wisconsin, reciprocity applies: have them file Form IL-W-5-NR and withhold their home state's tax instead of Illinois tax. If they live anywhere else, withhold Illinois tax on the Illinois-source wages. For a hybrid or remote employee, Illinois generally sources wages to where the work is physically performed, which means tracking days worked in each state for anyone who splits time.
Illinois Secure Choice is a state-facilitated Roth IRA program. You must facilitate it if you have five or more Illinois employees, have been in business at least two years, and do not offer a qualified retirement plan. Employees are auto-enrolled at a default 5% of gross pay, escalating one point each January to a 10% ceiling, and may opt out at any time. Employers make no contributions and pay no fees — the obligation is to run the deductions through payroll and remit them.
Illinois charges a late-filing penalty, a late-payment penalty and interest, and the amounts escalate the longer a liability is outstanding. Failing to file Form IL-941 for a quarter can also trigger an estimated assessment based on prior filings, which is generally higher than the real liability and must then be disputed. The most expensive mistake is treating withheld tax as working capital — withheld income tax is held in trust for the employee, and the state pursues it aggressively.
Sources
- IDOR — Withholding (payroll) tax information
- IDOR Publication 130 — who is required to withhold Illinois income tax
- IDES EA-50 (2026) — contribution rates and wage base
- Illinois Department of Labor — laws and rules
- IRS Publication 15 (Circular E) — Employer's Tax Guide
General guidance for Illinois employers, current as of August 2026. Rates, thresholds and filing rules change. Confirm against IDOR, IDES and the IRS, and consult a payroll professional or employment attorney before relying on this for compliance decisions.