How Much Are Payroll Taxes in Illinois?

Payroll taxes are mandatory contributions levied on wages and salaries, playing a fundamental role in funding various government programs. These taxes typically involve deductions from an employee’s gross pay and additional contributions made directly by the employer. The collective funds generated through payroll taxes support social safety nets and public services. Both employees and employers share the responsibility for these contributions, which are distinct from income taxes in their specific allocations to designated programs.

Federal Payroll Tax Rates

Federal payroll taxes primarily consist of contributions to Social Security and Medicare, collectively known as Federal Insurance Contributions Act (FICA) taxes, along with the Federal Unemployment Tax Act (FUTA).

For 2025, the Social Security tax rate is 6.2% for both the employee and the employer, totaling 12.4%. This tax applies to wages up to a certain annual limit, known as the Social Security wage base, which is set at $176,100 for 2025. Earnings exceeding this wage base are not subject to Social Security tax.

The Medicare tax rate for 2025 is 1.45% for both the employee and the employer, resulting in a combined rate of 2.9%. Unlike Social Security, there is no wage base limit for Medicare tax, meaning all covered wages are subject to this tax. An Additional Medicare Tax of 0.9% applies to individual wages exceeding $200,000, or $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. This additional tax is solely the employee’s responsibility, with no corresponding employer match.

The Federal Unemployment Tax Act (FUTA) imposes a tax on employers to fund unemployment benefits. The standard FUTA tax rate is 6.0% on the first $7,000 of each employee’s annual wages. However, employers typically receive a credit of up to 5.4% for timely payments to state unemployment insurance programs, effectively reducing the net FUTA tax rate to 0.6%. This credit helps offset the federal tax burden when state unemployment taxes are paid.

Illinois State Income Tax Withholding

Illinois imposes a flat income tax rate, meaning all taxable income is subject to the same percentage, regardless of the amount earned. For 2025, the state income tax rate in Illinois is 4.95%. No local income taxes are levied by cities or counties in Illinois.

Employers are responsible for withholding Illinois income tax from employee wages based on information provided by the employee. Employees complete Form IL-W4, the Employee’s Illinois Withholding Allowance Certificate, to determine the appropriate amount of state income tax to be withheld. This form helps ensure that the correct amount of tax is remitted throughout the year, aiming to prevent underpayment or overpayment at tax time.

The allowances claimed on Form IL-W4 impact the amount of tax withheld from each paycheck. Employees can adjust their allowances to account for personal circumstances, such as being able to claim themselves or dependents. While Illinois does not have a standard deduction for state income tax purposes, it offers a personal exemption allowance that reduces taxable income.

Illinois Unemployment Insurance Rates

Illinois Unemployment Insurance (UI) taxes are employer-paid contributions that fund benefits for eligible unemployed workers. These rates are experience-rated, meaning they can vary for individual employers based on their history of unemployment claims.

For 2025, the range of UI tax rates for experienced employers in Illinois is from a minimum of 0.750% to a maximum of 7.850%. The specific rate an employer pays is determined by a benefit ratio multiplied by the state experience factor, in addition to a fund building rate. The new employer rate for 2025 in Illinois is 3.650%. This rate applies to businesses for their initial years of operation before they establish an experience rating.

The Illinois UI tax applies only to a portion of an employee’s wages, up to a certain annual limit known as the taxable wage base. For 2025, the Illinois UI taxable wage base is $13,916.