How to Do Payroll in Illinois

In Illinois, employers are required to pay a specific sum of money for each hour an employee works. When calculating payroll taxes and deductions, it is necessary to know the amount that will be taken out from your paycheck at the end of the week. This article provides step-by-step instructions on how you can calculate this figure in Illinois

The “how to prepare payroll” is a guide on how to do payroll in Illinois. It includes information on what you need, and the different ways of doing it.

Illinois has Income Taxes in Different States, as well as Agreements of Reciprocity with neighboring states that allow workers to pay income taxes in their home state. Wage and labor rules are closely aligned with federal guidelines. We’ll go through how to do payroll in Illinois, as well as the most essential taxes and labor legislation that have an impact on payroll.

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Gusto is a great place to visit.

How to Run Payroll in Illinois: A Step-by-Step Guide

Step 1: Register your company as an employer. You’ll need your Employer Identification Number (EIN) and an account with the Electronic Federal Tax Payment System (EFTPS) at the federal level (EFTPS).

Step 2: Create an account with Illinois State University. You may register via MyTax Illinois, fill out and send Form REG-1, or go to an Illinois Department of Revenue location (IDOR). It might take six to eight weeks to complete the paperwork if you send it. State Unemployment Benefits taxes are also accepted in the MyTax Illinois account.

Step 3: Create a payroll system. You’ll need to select how frequently, when, and how you’ll pay your employees—the most typical options are direct deposit and paper check. You’ll also need to devise a system for collecting Forms for Payroll and other documentation required for payroll processing.

Collect employee payroll paperwork in step four. It’s simplest if you do it throughout the onboarding process. W-4, I-9, and a direct deposit permission are among the forms available. The IL-W-4 is required for Illinois.

Collect, evaluate, and approve time sheets in step 5. You’ll need a mechanism to monitor employee work hours if you have hourly or nonexempt staff. Most small company owners make their own time sheets (try using one of our free templates) or utilize time and attendance software, which comes with several free options.

Step 6: Work out your payroll and pay your staff. You’ll need to figure out how many hours you worked (use our free timecard calculator to assist), gross pay, paycheck deductions, tax withholdings, and benefit premiums, among other things. You’ll also pay your staff on time. This phase may be automated with the use of an Excel payroll template or payroll software.

Step 7: File payroll taxes with the federal government and the state of Illinois. For federal taxes, including unemployment, follow the IRS’s guidelines.

• Illinois income taxes must be filed and paid online using MyTax Illinois. If you are unable to do so, you must apply for an IDOR waiver. Installments for monthly payments are due on the 15th of the following month. Payments are due three to five days after payday if you pay semiweekly. The quarterly deadlines for submitting Form IL-941 are shown below. You must submit an IL-501 if you pay more than $500 every quarter. The complete schedule is available as a PDF download.
• SUTA (State Unemployment Taxes): You may pay for them using MyTax Illinois or by mailing a check together with the payment coupon found at the bottom of the UI-3/40 or the collection coupon IDOR sends you. The following dates are when state Unemployment Benefits tax reports and payments are due:

If a report or tax payment is due on a Saturday, Sunday, or legal holiday, the report or payment is deemed timely if it is received on or before the next working day.

Step 8: Keep track of your payroll data. Illinois requires you to preserve personnel records for at least five years, which is a little longer than the federal standard (three years for payroll records and four years for payroll tax documents).

Step 9: Complete your year-end payroll tax returns. By January 31 of the year after the year for which you’re reporting, send the federal Forms W-2s (for employees) and 1099s (for contractors) to the IRS. You’ll also need to provide copies of each to the IRS, as well as a summary form.

Follow our tutorial on how to conduct payroll for your small company for additional basic information, including a free printable checklist to ensure you don’t miss any stages.

Illinois Payroll Laws, Taxes & Regulations

To begin, you must adhere to federal law on income taxes, Social Security, Medicare, and federal Unemployment Benefits (FUTA). You’ll deduct 6.2 percent of each employee’s wages for Social Security and 1.45 percent for Medicare from their paycheck. These taxes will be paid by both the employer and the employee, with each contributing 7.65% of the total Social Security and Medicare taxes.

Review the facts on Illinois payroll rules, taxes, and regulations below to help you stay in compliance with payroll requirements.

Taxes in Illinois

Income Taxes in Different States

If you withhold federal income taxes for an employee, you must also withhold Income Taxes in Different States. The only exceptions are nonresidents working in Illinois who live in states with a reciprocity agreement. Illinois has a flat tax rate of 4.95% of net income, with an allowance of $2,375 per exemption—you’ll need to subtract any exemptions from wages paid and multiply by the 4.95% tax rate. The IDOR Booklet IL-700-T has full instructions and the withholding tables.

If your withholdings total more than $12,000 in a quarter, you must use the semiweekly payment plan outlined in the step-by-step section above. You may also pay on a monthly basis.

Agreements of Reciprocity

Illinois has Agreements of Reciprocity with Iowa, Kentucky, Michigan, and Wisconsin. If an employee works in Illinois but lives in one of these states, they pay Income Taxes in Different States for their state of residency. This also applies to employees who are spouses of military members where both are residents of the other state, but the person is only living in Illinois while the military member is stationed in Illinois. Such employees need to fill out an IL-W-5-NR.

Income Taxes in Your Community

There are no Income Taxes in Your Community in Illinois.

Unemployment Benefits

Illinois assesses SUTA on a $12,960 taxable pay basis. For experienced employers, rates vary from 0.675 percent to 6.875 percent. If your total earnings for the quarter are less than $50,000, you must pay the lower of your rate or 5.4 percent. For new employers, the standard rate is 3.175 percent.

If you meet the following criteria, you must pay SUTA:

• In Illinois, you hired one or more employees on any given day during any of the 20 or more calendar weeks or any calendar year.
• In a quarter, your yearly gross wage payroll equals or surpasses $1,500.
• During any quarter of the current or preceding calendar year, you hired agricultural employees and paid them $20,000 or more in cash.
• During the current or preceding calendar year, you employed 10 or more people in agricultural labor in 20 different weeks.
• In any quarter of the current or previous calendar year, you hired domestic employees and paid $1,000 or more in cash for domestic services.

Employees and workers in the following categories are exempt:

• Directors, sole proprietors
• Owner’s parent, spouse, or minor kid
• Employees who do some work elsewhere and agree to count the other state as their main if they are not covered by their state or Canada—or those who do some work elsewhere and agree to include the other state as their primary if they are not covered by their state or Canada.
• Under some circumstances, independent contractors are permitted.
• Agricultural workmen in various circumstances
• Domestic workers who make less than $1,000 in a calendar quarter are considered low-wage.
• Maritime employees
• Under some circumstances, real estate brokers are allowed to work.
• Persons under the age of 18 who distribute newspapers
• Insurance agents who are paid on commission
• Employees of nonprofit organizations
• Under specific circumstances, full-time students at an organized camp

Did you know? If you pay SUTA, you may be eligible for a 5.4 percent FUTA reduction. FUTA is usually 6% of the first $7,000 of each employee’s compensation, so if you accept the reduction, you’ll only be paying 0.6 percent.

Insurance for Workers’ Compensation

You must provide Insurance for Workers’ Compensation for your employees, even if you have only one part-time employee. This also includes family workers, except for those working very limited hours. You have the option to self-insure, but roughly 90% of employers buy insurance.

Illinois’ Minimum Wage Laws

Workers aged 18 and above are covered by the Illinois minimum wage. According to this timeline, Illinois’ minimum wage will progressively climb to $15 per hour (far more than the federal $7.25 minimum pay)—please keep this in mind so you can budget for increases and stay in compliance:

There are a few exceptions:

• Employers with fewer than four workers (excluding a parent, spouse, kid, or other immediate family member) are considered small businesses.
• Agricultural workers in particular
• Salespeople from the outside
• Those who belong to a religious group
• Employees at an accredited Illinois college or university who work with students who are protected by the Fair Labor Standards Act (FLSA)
• Employees of motor transport businesses in particular
• Under specific circumstances, baseball players in lower leagues
• Under some circumstances, camp counselors

Gratuities may account for as much as 40% of the minimum salary.

Illinois Regulations on Overtime

If an employee works more than 40 hours in a week, you must pay them at least time-and-a-half overtime compensation. Some salaried employees are included, but only if they are classed as nonexempt.

There are a few exceptions:

• Dealership salespeople and mechanics
• Agricultural workmen
• The FLSA defines executive, administrative, and professional personnel.
• Employees of radio and television stations
• Employees who are commissioned, as defined by the FLSA
• Employees who swap shifts as part of an employment agreement
• Employees of certain educational and residential child care facilities
• Employees who are obtaining remedial education, which does not involve job-specific training but rather is for general education up to the eighth grade level.

Employees Can Be Paid in a Variety of Ways

Employees may be paid in cash, via paper check, direct deposit, or payroll card. Employees must, however, agree to be paid electronically (through direct deposit or pay card).

Pay Stub Regulations

Each payday, employees must get an itemized pay stub detailing their earnings, deductions, and net compensation. If you don’t use a payroll system, you may not have access to pay stubs on a regular basis. Use one of our free pay stub templates to make your own and remain in compliance.

Minimum Pay Period

Wages must be paid at least semimonthly and within 13 days of a pay period’s end. Executive, administrative, and professional staff, as well as commission-based employees covered by the FLSA, are entitled to receive monthly paychecks.

Payroll Deduction Regulations

You have the right to remove money from an employee’s compensation for the following reasons:

• Taxes
• Garnishments are needed by law (like child support)
• Employee perks such as health insurance
• Employees’ written permission to valid wage assignments or deductions
• Repayment of financial advances at a rate of no more than 15% of the employee’s salary on a monthly basis

You are not allowed to deduct money for:

• Employer-owned uniforms, tools, or equipment
• Unless the employee agrees in writing, there will be cash or inventory shortages or damages.

Laws Regarding Final Paychecks

Final paychecks are due on the following regularly scheduled payment, although the state advises that you pay them as soon as possible after separation. Wages, salaries, commissions, bonuses, and the monetary equivalent of earned vacation, holidays, or other compensations that have not been paid make up final compensation.

Paid Time Off (PTO) has been accrued.

A specified accumulated time off rate is not required in Illinois. If you do decide to implement a vacation policy, it must be documented and earned pro-rata while the employee works for you. If you like, you may begin accruing after a probationary time. You may have a use-or-lose policy as long as the employee gets a fair chance to utilize the vacation. Visit the Illinois government website for further information.

HR Laws in Illinois That Affect Payroll

Reporting of New Hires in Illinois

Within 20 days after the employee’s first day on the job, you must notify the Illinois Department of Employment Security (IDES). This may be done with MyTax Illinois.

Requirements for Lunch and Other Breaks

Employers are required to provide workers with a minimum of 24 hours of rest every calendar week, or one day off every six weeks. You must have a written agreement with the employee if the employee chooses to waive this.

For every 7.5-hour shift, employers must provide a meal break of at least 20 minutes. The break must be taken within five hours of the shift’s start time.

Sick Leave with Pay

In the News: Chicago and Cook County have their own Sick Leave ordinance mandating you accrue an hour of Sick Leave with Pay for every 40 hours worked.

Illinois does not specify a minimum number of paid or unpaid sick days. Follow federal law, but keep in mind that the Illinois Employee Sick Time Act allows workers to take sick leave for the care of family members as well.

Voting Time Off Is Paid

Employees can take up to two hours of Voting Time Off Is Paid. You can opt to schedule voting hours for them as well.

Minors in the Workforce

Minors under the age of 16 are covered by Illinois child labor regulations, which require all minors to acquire work credentials. A minor is not permitted to work in dangerous environments such as sawmills, construction, or places where alcohol is supplied or sold (except as a busboy or at a park.)

There are a few exceptions:

• When not engaged in business, minors do lawn maintenance and other residential or domestic activities around the house.
• Minors over the age of 13 who work as caddies on a golf course
• Officials for various sporting events are minors aged 12 and 13.

When school is in session, Illinois permits minors 14 and 15 to work a maximum of three hours per day, 24 hours per week, with no more than eight hours of school and employment in a single day—federal law limits hours to 18 weekly when school is in session. When school is not in session, minors under the age of 16 may work up to eight hours per day, six days per week, for a total of 48 hours per week—federal law does not impose any restrictions on adolescents 16 and above.

Except between June 1 and Labor Day, when work hours are extended to 9 p.m., minors may work between the hours of 7 a.m. and 7 p.m. They must be given a 30-minute meal break no later than the sixth straight hour of labor.

Forms for Payroll

Form IL-W-4 from the state of Illinois

• IL-W-4: This form is used to calculate withholdings for state taxes in Illinois. Employees should complete it as soon as they are employed. If an employee fails to complete it, you must withhold the maximum amount possible, with no exceptions.

Other State of Illinois Payroll and Tax Forms

• IL-W-5-NR: Nonresident request for exemption for residents of Kentucky, Michigan, Iowa, or Wisconsin, as well as spouses of military personnel presently stationed in Illinois.
• If you are unable to pay your income tax withholdings electronically, use Form IL-501.
• Withholding tax return (IL-941)
• WC-1: If you engage in specific programs, you may apply for income tax credits using this form.

Federal Forms for Payroll

• W-4 Form: Used by businesses to figure out how much tax to withhold from employees’ paychecks.
• W-2 Form: This form is used to report total yearly earnings (one per employee)
• W-3 Form: Reports all workers’ total pay and taxes.
• Form 940: This form is used to report and compute the amount of unemployment taxes owed to the IRS.
• Quarterly income and FICA taxes deducted from paychecks are reported on Form 941.
• Annual income and FICA taxes deducted from paychecks are reported on Form 944.
• 1099 Forms: Information on non-employee remuneration that assists the IRS in collecting taxes on contract labor.

Payroll Tax Resources/Sources in Illinois

• Register your company, submit reports, make payments, obtain withholding information, and more at the Illinois Department of Revenue.
• Get information about job fairs, labor statistics, unemployment taxes, and other issues from the Illinois Department of Employment Security (IDES).
• Articles about managing your company and personnel, as well as connections to registrations, licenses, and permits are available on the Illinois.gov Business Page.
• The Illinois Workers’ Compensation Commission’s website has all of the information you’ll need to acquire and utilize workers’ compensation benefits.

Conclusion

Unless you self-insure, Illinois levies state income tax and SUTA, as well as requiring you to get workers’ compensation from a third-party insurer. In 2025, the minimum wage will increase to $15 per hour. MyTax Illinois handles the majority of payments. Avoiding expensive penalties by making sure you understand the regulations and processes for handling payroll in Illinois.

If you are looking to do payroll in Illinois, then the “illinois payroll tax registration” is the first step. Once you have completed this process, you can begin filing your taxes.

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