Comprehensive Guide to Payroll Taxes in Illinois

Employers have to navigate a variety of federal and state tax obligations, regulations, and requirements to ensure compliant payroll withholding in each US state. This guide provides a structured overview of payroll taxes in Illinois, outlining what employers need to pay and withhold from payroll, including unemployment insurance, personal income tax, and workers’ compensation.

Overview of Payroll Taxes in Illinois

Employers in Illinois are responsible for federal income tax, FICA taxes (Medicare and Social Security), and state payroll taxes. As of 2025, Illinois uses a flat rate of 4.95% for personal income tax. The Illinois Department of Revenue can audit tax returns to ensure payroll tax compliance.

Illinois imposes a sales tax that ranges from 6.25% to 10.50%, depending on municipality. Nonprofit organizations can apply for exemptions from state sales tax and real estate taxes but are responsible for all employment taxes on wages paid to employees.

Paying unemployment insurance (UI)

As an employer in Illinois, you are responsible for paying for unemployment insurance on behalf of your employees.

The unemployment insurance (UI) or state unemployment insurance (SUI) tax funds temporary financial aid for workers who are unemployed through no fault of there own. The national program's rates and requirements vary between states. In Illinois, UI is managed by the Illinois Department of Employment Security.

Employers' contribution rate for 2025 is 3.65% or a rate based on their experience, depending on when they become liable for contributions. The maximum contribution rate is 7.85%.

The taxable wage limit in 2025 is $13,916 per employee per year. Unemployment insurance payments are due quarterly on April 30, July 31, October 31, and January 31.

To manage your Illinois unemployment insurance, you can utilize the convenient online portal provided by the state. By accessing the MyTax Illinois portal, you can easily handle your UI obligations. See the Illinois Department of Employment Security for more information on the process and requirements.

Withholding personal income tax (PIT) from your employee

Personal income tax (PIT), also known as individual income tax or state income tax, is a tax levied on the income of Illinois residents and non-residents working in Illinois. As an employer, you are required to withhold the appropriate amount of PIT from your employee’s wages and remit it to the Illinois Department of Revenue. The Illinois Department of Revenue can audit tax returns for payroll tax compliance.

Employees pay PIT on their full paycheck at a rate of 4.95%. The process of withholding PIT from your employee’s pay can be completed through the same online portal used for unemployment insurance. To ensure accurate compliance with PIT requirements, refer to the Illinois Department of Revenue.

New employers follow a monthly schedule, while existing employers are assigned a semi-weekly or monthly payment schedule by the Department of Revenue for remitting withheld tax. Monthly filers must make payments by the 15th of each month for the prior month. Semi-weekly filers must make payments by the following Wednesday or Friday, depending on the pay date.

Submitting Payroll Taxes in Illinois

Before you can submit payroll taxes as an Illinois employer, you need to obtain an EIN from the IRS and register with the state using the MyTax Illinois portal. Your employees must fill out Form IL-W-4.

Semi-weekly filers are required to remit their payroll taxes electronically, while employers who file by mail must use forms IL-501 and IL-941 for withholding tax and Form UI-3/40 for unemployment insurance.

Starting from January 1, employers in Illinois are required to provide pay stubs to their employees for each pay period. The pay stub includes information such as work hours, pay rates, overtime pay, and wage deductions.

This law is designed to enhance transparency by allowing employees to verify their hours, income, and deductions.

Paying your Illinois workers’ compensation (WC)

In addition to payroll taxes, you are also obligated to provide workers’ compensation insurance for your employees in Illinois. This insurance coverage protects employees in the event of work-related injuries or illnesses.

Even if you have just one employee in the state, you must ensure they are covered by workers’ compensation insurance. You can find qualified commercial carriers offering this insurance through the Illinois Workers’ Compensation Commission’s website. Verifying that your chosen insurance policy complies with the state’s regulations is crucial to avoid any potential penalties.

Simplify US payroll tax compliance with Deel

While this guide provides essential information on Illinois payroll taxes, payroll compliance and state requirements extend beyond what is covered above. To streamline the process and ensure full compliance, companies can turn to Deel. 

Deel offers a comprehensive solution for managing US and international payroll, including payments, taxes, worker classification, and more. Speak with an expert today to see how you can streamline your US payroll processes and ensure compliance with state regulations.