Withholding Taxes: Illinois

This item is part of Withholding Taxes.

The below content should be reviewed in conjunction with the in-depth federal coverage of this topic provided above.

Author: Vicki M. Lambert, The Payroll Advisor

Summary

  • Illinois uses a localization test to determine if compensation for work performed is subject to Illinois income tax. Under the test, Illinois tax must be withheld under certain conditions. Illinois has reciprocal agreements with Iowa, Kentucky, Michigan, and Wisconsin. See Withholding on Residents, Nonresidents and Expatriates.
  • Employees must provide their employers with a completed Form IL-W-4, Employee's Illinois Withholding Allowance Certificate, when hired. If an employee does not provide the form, the employer must withhold Illinois income tax without allowing for any exemptions. See Employee's Withholding Allowance Certificate.
  • Withholding on supplemental wages, such as bonuses, may be calculated at a flat rate set by law. See Supplemental Wages.
  • Illinois employers must provide each employee with three copies of federal Form W-2, Wage and Tax Statement, before February 1 of each year. Employees who quit or are terminated before the end of the calendar year must also be provided with the form within a certain time period. See Form W-2 Requirements.
  • Employers must keep certain payroll records for at least three years. See Recordkeeping Requirements.
  • The City of Chicago requires employers to pay an employer expense tax. The tax applies to businesses that employ 50 or more full-time workers or commission merchants who perform 50 percent or more of their work per calendar quarter in Chicago. See Chicago Employer Expense Tax.