How Much Is Payroll Tax in Illinois?

Payroll taxes are a significant component of employment costs, funding various government programs. These taxes combine amounts withheld directly from employee wages and contributions made by employers. Understanding these obligations is crucial for businesses to ensure compliance and manage financial responsibilities.

Federal Payroll Taxes

Federal payroll taxes include contributions to Social Security and Medicare, 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 employer, totaling 12.4%. This tax applies to wages up to an annual limit of $176,100 for 2025. Once an employee’s earnings exceed this wage base, no further Social Security tax is withheld or contributed.

Medicare tax is assessed at a rate of 1.45% for both the employee and employer. Unlike Social Security, there is no wage base limit for Medicare tax; it applies to all covered earnings. An additional Medicare Tax of 0.9% applies to an individual’s Medicare wages exceeding $200,000, which employers must withhold. This additional tax is an employee-only contribution.

The Federal Unemployment Tax Act (FUTA) is an employer-only tax. The standard FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages. Employers can claim a credit for state unemployment taxes paid, which can reduce the effective FUTA tax rate to as low as 0.6%. This credit is available when state unemployment taxes are paid in full and on time.

Illinois State Income Tax Withholding

Illinois imposes a flat income tax rate that applies uniformly to all residents, regardless of their income level. For 2025, the state income tax rate in Illinois is 4.95%. This means that 4.95% of an employee’s taxable gross wages are subject to Illinois state income tax.

Employers in Illinois are responsible for withholding this state income tax from employee paychecks. The tax applies to an employee’s gross wages after considering applicable exemptions. For 2025, the exemption allowance is $2,850 per exemption.

Illinois Unemployment Insurance Tax

The Illinois Unemployment Insurance (UI) tax, also known as State Unemployment Tax Act (SUTA) tax, is an employer-paid tax that helps fund unemployment benefits for eligible workers. This tax is levied on a portion of each employee’s wages, up to a specific annual limit. For 2025, the taxable wage base for Illinois UI is $13,916 per employee. Employers pay UI tax only on wages up to this amount for each employee within a calendar year.

New employers in Illinois are assigned an initial UI tax rate for their first few years of operation. For 2025, the new employer rate is 3.65% multiplied by the state experience factor. After a period, generally three years, an employer’s UI tax rate transitions to an experience-adjusted rate. This experience rating is determined by factors such as the employer’s history of unemployment claims and the amount of benefits paid to former employees. The range of potential UI tax rates for experienced employers in Illinois for 2025 is between 0.750% and 7.850%.

Calculating and Reporting Payroll Taxes

Calculating an employee’s net pay involves several deductions from gross wages. This includes federal income tax withholding, Social Security, and Medicare taxes, along with Illinois state income tax withholding. Employers compute their total payroll tax liability by summing their share of FICA taxes, FUTA tax, and Illinois UI tax. The specific rates and wage bases previously discussed apply to the relevant earnings to determine these amounts.

Employers have specific requirements for reporting and paying federal payroll taxes to the Internal Revenue Service (IRS). Most employers file Form 941, Employer’s Quarterly Federal Tax Return, each quarter to report federal income tax withheld, Social Security, and Medicare taxes. Form 940, Employer’s Annual Federal Unemployment Tax Return, is filed annually to report FUTA tax. Employers must also furnish employees with Form W-2, Wage and Tax Statement, by January 31 of the following year, reporting wages and withheld taxes.

Federal tax deposits are made through electronic funds transfers (EFT) and follow either a monthly or semi-weekly schedule, depending on the employer’s total tax liability. Monthly depositors remit taxes by the 15th of the following month, while semi-weekly depositors have specific deadlines based on payroll dates. FUTA tax deposits are required quarterly if the liability exceeds $500.

For Illinois state payroll taxes, employers must report and pay Illinois income tax withholding and Illinois UI tax. Illinois income tax withholding is reported quarterly on Form IL-941, Illinois Withholding Income Tax Return, which must be filed electronically. Illinois UI contributions and wage reports are filed quarterly using Form UI-3/40.

Payment schedules for Illinois withholding can be monthly or semi-weekly. Monthly payments are due by the 15th of the following month, and semi-weekly payments follow federal guidelines. Taxpayers reporting more than $12,000 in withholding during a quarter are assigned to the semi-weekly schedule. These state tax processes can be managed through the MyTax Illinois online portal.