Illinois Payroll Tax Requirements for Employers

Illinois employers must manage state payroll tax obligations in addition to federal requirements. These responsibilities involve withholding state income tax from employee wages and paying a separate unemployment insurance tax as an employer. The entire process, from registration to filing, is handled through the state’s online portals.

Illinois Payroll Tax Components

The primary payroll tax obligations in Illinois are state income tax withholding and state unemployment insurance. Employers must deduct state income tax from employee wages as a prepayment of the employee’s personal tax liability. The amount to withhold is based on the employee’s earnings and claimed allowances, calculated against Illinois’s flat personal income tax rate of 4.95% for 2025.

Employers are also responsible for paying State Unemployment Insurance (SUI) tax to the Illinois Department of Employment Security (IDES). SUI is an operating expense for the business and is not withheld from employee wages. The tax funds benefit payments for individuals who become unemployed through no fault of their own, and the amount an employer pays is based on a tax rate assigned by the IDES.

For 2025, new employers are assigned a SUI rate of 3.65%, or 3.75% for those in sectors like administrative support or waste management. After an initial period, the rate is recalculated based on the employer’s “experience rating,” which reflects its history of unemployment claims. A stable workforce with few claims will lead to a lower SUI rate over time, while frequent layoffs can result in a higher rate.

Employer Registration and Required Information

Before processing payroll, employers must register with two state agencies through the MyTax Illinois online portal. This single registration establishes an account with the Illinois Department of Revenue (IDOR) for income tax withholding and with the Illinois Department of Employment Security (IDES) for SUI tax. Businesses must provide their Federal Employer Identification Number (FEIN) during this process.

Every employee must complete and sign a Form IL-W-4, Employee’s Illinois Withholding Allowance Certificate. This form provides the employer with the necessary information to calculate the correct amount of state income tax to withhold from each paycheck. The employee specifies the number of allowances they wish to claim, which directly impacts their withholding amount. Employers are responsible for collecting these forms from every new hire and keeping them on file for auditing purposes.

After registering for SUI, the IDES determines the employer’s tax rate and mails a “Notice of Contribution Rate.” This notice states the percentage rate the employer must use to calculate their SUI tax liability for the year.

Filing and Payment Procedures

Employers must follow specific procedures for filing returns and remitting taxes. For state income tax, employers report total withholding on Form IL-941, the Illinois Withholding Income Tax Return. The IDOR assigns a filing frequency, with new employers placed on a quarterly filing and monthly payment schedule. Payments are due by the 15th of the month for taxes withheld in the prior month.

For SUI, employers file the quarterly Form UI-3/40, Employer’s Contribution and Wage Report, with the IDES. This form requires reporting the wages paid to each employee. SUI tax is calculated using the employer’s assigned rate on wages up to the state’s taxable wage base, which is $13,916 per employee for 2025.

Filing and payments for both taxes are handled electronically through the MyTax Illinois portal. Withholding tax returns (Form IL-941) are due by the last day of the month after the quarter ends. SUI reports and payments (Form UI-3/40) have firm quarterly deadlines:

• April 30
• July 31
• October 31
• January 31

Annual Reconciliation Requirements

At the end of the calendar year, employers must complete reconciliation duties with the state. These tasks ensure that the total taxes reported and paid align with the total wages paid and taxes withheld for the year.

The reconciliation form for income tax is Form IL-W-3, the Illinois Annual Withholding Income Tax Return. This form summarizes the total state income tax withheld from all employees. The amounts reported on the IL-W-3 must match the cumulative totals from the quarterly IL-941 forms filed during the year. This annual return provides a final verification of the employer’s withholding tax liability.

Employers must also submit copies of all employee W-2 forms to the Illinois Department of Revenue. This is a separate requirement from providing W-2s to employees or the Social Security Administration. The state uses these copies to cross-reference the income and withholding reported for each employee. Both the IL-W-3 and employee W-2s must be filed electronically by January 31 of the following year.