Illinois Hourly Payroll Calculator
You’re not the only business owner in Illinois poring over payroll taxes for your hourly employees.
Stop fussing over confusing calculations or tax rules—this article will help you understand what you need to do to process Illinois payroll.
Payroll taxes in Illinois
There are two state taxes to be aware of in Illinois: personal income tax and unemployment tax.
Personal Income Tax in Illinois
Personal income tax in Illinois is a flat 4.95% for 20221. Although you might be tempted to take an employee’s earnings and multiply by 4.95% to come to a withholding amount, it’s not that easy.
You’ll use your employee’s IL-W-4 to calculate how much to withhold from their paycheck. Withholding is based upon the number of allowances an employee claims. When an employee doesn’t provide an IL-W-4, you’re required to withhold tax as if no allowances were claimed.
You’ll need to send the withheld taxes to the Illinois Department of Revenue either monthly or semi-weekly depending on the amount of tax due.
For employees who reside in Iowa, Kentucky, Michigan, and Wisconsin, they’ll complete IL-W-5-NR. Since Illinois has a tax reciprocity agreement with these neighboring states, these non-resident employees are exempt from Illinois withholding.
Unemployment Tax in Illinois
Unemployment taxes in Illinois are required to be paid by most employers.
Generally, if you paid at least $1,500 in wages in a single calendar quarter or had at least one employee for at least 20 weeks in a year, you’re required to pay unemployment tax. There are different requirements for domestic workers, farm employees, and non-profit organizations.
The tax rate you’ll pay depends on several factors, including your business’s industry, how many employees you have, and the amount of claims made by your former employees. For 20221, rates start at 0.725675% and can be as high as 7.6256.875%.
You’ll pay this tax each quarter using Form UI-3/40.
Federal Payroll Taxes
Federal Income Tax (FIT)
Withholding federal income tax from your employee’s pay is dependent on the information on Form W-4. New employees should complete this form when they begin working for you and update it whenever anything changes the amount of tax they owe.
Hang on to these forms for your records. Don’t send them to the IRS.
Additional Medicare Tax
Depending on your employee’s tax filing status, they may owe the Additional Medicare Tax. However, since you won’t know whether they owe the tax or not, you’re required to withhold 0.9% of an employee’s earnings above $200,000 per year.
Federal Insurance Contributions Act (FICA)
The Federal Insurance Contributions Act (FICA) tax rate is 15.3% and is broken down into two parts: Social Security tax and Medicare tax.
Social security tax (12.4%) is paid in equal parts by the employee (6.2%) and employer (6.2%) on the first $147,000 in wages in 2022.
Medicare tax (2.9%) is paid in equal parts by the employee (1.45%) and employer (1.45%). There is no wage cap for the Medicare tax.
Federal Unemployment Tax Act (FUTA)
FUTA is a federal tax that supplements a state’s unemployment insurance program.
The first $7,000 of an employee’s income each year is taxable for FUTA. The current tax rate is 6% and you may be able to claim up to a 5.4% tax credit for paying your state unemployment tax on time.
If your FUTA tax payment is less than $500, you can process your payment annually. Anything more than $500 is due quarterly.
Use Form 940 to report your annual FUTA tax wages.
Important Illinois Payroll Tax Laws & Items
Make sure you cross each of these off your list
1. How to Report New Hires in Illinois
All Illinois employers must report new hires within 20 days after the new employee’s first day working. You have three options to report new hires.
2. Illinois Minimum Wage
As of January 1, 20221, the minimum wage in Illinois is $121.00/hour. Different rates apply to tipped employees and employees under 18 years of age.
|Minimum Wage in Illinois|
|As at||Hourly Rate|
|January 1, 2021||$11.00 per hour|
|January 1, 2022||$12.00 per hour|
|January 1, 2023||$13.00 per hour|
|January 1, 2024||$14.00 per hour|
|January 1, 2025||$15.00 per hour|
You may pay up to $0.50 less an hour for your new hires in their first 90 days of employment. This applies to workers over the age of 18.
3. Overtime Pay in Illinois
Illinois labor laws require you to pay hourly employees for any hours worked over a 40-hour workweek. The rate you must pay for any overtime hours is 1 ½ of your hourly-paid employees’ regular hourly rate.
Compensatory time in lieu of overtime if prohibited in Illinois.
4. PTO, Holiday, and Sick Leave in Illinois
All employers in the State of Illinois are required to pay their employers for any earned vacation hours upon separation from your business. Sick pay is not required to be paid at separation unless the employer’s written policy says so.
The Employee Sick Leave Act requires employers to allow employees to use any sick leave they earned to care for certain relatives under the employer policies.
Employers are not obligated to pay hourly employees for any hours not worked, including holidays.
5. Illinois Paystub Requirements
All Illinois employers must provide terminated hourly employees their final paycheck no later than on the next scheduled payday. All final compensation includes:
- Bonus wages
- Vacation pay
The same paystub termination rule applies to any worker who voluntarily resigns from their employer.
6. Workers’ Compensation in Illinois
Having at least one part-time employee will cause most employers to secure workers’ compensation insurance.
The Bottom Line On Illinois Hourly Payroll Tax
Processing Illinois payroll taxes for your hourly employees in an accurate and timely manner is crucial. Doing so will ensure your business runs as smoothly as possible. The last thing you would want on your books is a hefty tax penalty.
While tax rates fluctuate every year, staying on top of your numbers and documentation will come in handy. Using Gusto’s payroll software or a tax professional is a smart investment to tackle questions and challenges.