Illinois Income Tax Withholding 2026: Employer Guide

If you run a business in Illinois, here is the good news: the state uses a flat income tax rate. Unlike progressive-rate states such as California (which has rates ranging from 1% to 13.3%) or the federal income tax system with its multiple brackets, Illinois applies a single rate to all taxable income. That makes withholding calculations significantly simpler for employers.

However, "simpler" does not mean you can ignore the details. You still need to collect the right forms from employees, calculate withholding correctly, file returns on time, and make deposits on schedule. This guide walks through every step Illinois employers need to know about state income tax withholding in 2026.

The Flat 4.95% Rate

The Illinois Constitution requires the state to use a flat income tax rate — the same percentage applies to all taxable income, regardless of how much an employee earns. The current rate is 4.95%, which has been in effect since July 1, 2017.

What this means in practice:

• An employee earning $30,000/year and an employee earning $300,000/year are both taxed at 4.95% on their Illinois taxable income.
• There are no tax brackets to look up. No phase-outs or graduated schedules.
• You apply one rate to the taxable amount after allowances — that is the withholding.

Compare this to the federal system, where employers must navigate seven tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%), or California, which has rates from 1% up to 13.3%. Illinois's flat structure removes that complexity entirely.

IL-W-4 Form

Every employee working in Illinois must complete Form IL-W-4 (Employee's and other Payee's Illinois Withholding Allowance Certificate). This is the state equivalent of the federal W-4 and tells you how much to reduce their withholding.

What the IL-W-4 Covers

• Line 1 — Basic Allowances: The employee claims allowances based on their filing status and personal exemptions. One allowance for themselves, one for a spouse (if applicable), and one for each dependent.
• Line 2 — Additional Allowances: Employees may claim additional allowances if they expect to have credits (such as property tax credits or education expense credits) that will reduce their Illinois tax liability.
• Additional Withholding: Employees can request an additional flat dollar amount be withheld from each paycheck.
• Exempt Status: Employees who expect to owe no Illinois income tax may claim exemption from withholding.

How Allowances Reduce Withholding

Each allowance claimed on the IL-W-4 reduces the amount of wages subject to the 4.95% tax. The Illinois Department of Revenue publishes the per-allowance reduction amount each year. More allowances mean less withholding; fewer allowances mean more withholding.

When to Request a New IL-W-4

• At the time of hire (before the first paycheck)
• When an employee requests a change to their withholding
• The IL-W-4 does not expire, but employees should update it after major life events (marriage, divorce, new dependents)

How to Calculate Illinois Withholding

Calculating Illinois state income tax withholding is straightforward thanks to the flat rate. Here is the step-by-step process:

Step 1: Start with Gross Wages

Begin with the employee's gross wages for the pay period. This includes regular wages, overtime, bonuses, and commissions.

Step 2: Subtract the Allowance Amount

Using the number of allowances claimed on the employee's IL-W-4, subtract the corresponding allowance amount for the pay period. The Illinois Department of Revenue provides tables showing the per-pay-period value of each allowance (annual amount divided by number of pay periods).

For 2026 withholding, each allowance reduces the annual amount subject to withholding. Divide the annual allowance value by the number of pay periods to get the per-period reduction:

• Weekly: Annual allowance value ÷ 52
• Biweekly: Annual allowance value ÷ 26
• Semi-monthly: Annual allowance value ÷ 24
• Monthly: Annual allowance value ÷ 12

Step 3: Multiply Taxable Amount by 4.95%

Take the result from Step 2 (gross wages minus allowance amount) and multiply by 0.0495. The result is the Illinois income tax to withhold for that pay period.

Example Calculation

Filing IL-941 Returns

Illinois employers report their state income tax withholding on Form IL-941 (Illinois Withholding Income Tax Return). Most employers file quarterly, but the frequency depends on your total withholding amount.

Quarterly Filing

The majority of Illinois employers file IL-941 on a quarterly basis through the MyTax Illinois online portal. Quarterly deadlines are:

Monthly Filing

If your total withholding exceeds certain thresholds (generally $12,000 or more in withholding during the lookback period), you may be required to file monthly instead of quarterly. The Illinois Department of Revenue will notify you of your filing frequency.

Annual Filing

Very small employers with minimal withholding obligations may qualify for annual filing. If your total annual Illinois withholding is under $1,000, you may be eligible to file Form IL-941 once per year instead of quarterly. Check with the Department of Revenue or your MyTax Illinois account for your assigned filing frequency.

Payment Schedules

Your payment (deposit) schedule for Illinois withholding depends on the amount you withhold. The three schedules are:

Quarterly Depositors

If your average monthly withholding is less than $500, you may remit your withheld taxes quarterly — at the same time you file your IL-941.

Monthly Depositors

If your average monthly withholding is $500 to $3,000, you must deposit withheld taxes by the 15th of the following month. For example, January withholding is due by February 15.

Semi-Weekly Depositors

If your average monthly withholding exceeds $3,000, you must deposit on a semi-weekly schedule:

• For wages paid Wednesday through Friday: deposit by the following Wednesday
• For wages paid Saturday through Tuesday: deposit by the following Friday

All payments should be made through MyTax Illinois for electronic payment. The system accepts ACH debit payments directly from your bank account.

Chicago Head Tax

The Chicago head tax is often confused with a local income tax, but it is fundamentally different. Here is what Chicago-area employers need to know:

What It Is

The Chicago head tax is a per-employee tax — not an income tax. It is a flat fee paid by the employer based on headcount, not on wages or income.

Who Pays

• Employers with 50 or more employees who work within the City of Chicago
• The tax applies to each covered employee, not just those above the 50-employee threshold

How Much

The rate is $4.00 per month per employee ($48/year per employee). While the per-employee amount is small, it adds up for larger employers. A company with 200 Chicago employees pays $800/month or $9,600/year.

How to File

The Chicago head tax is filed quarterly with the Chicago Department of Finance — not with the State of Illinois. It is completely separate from your IL-941 filing and MyTax Illinois account.

No Other Local Income Taxes

Unlike some states, Illinois does not allow municipalities to levy local income taxes. This is a significant advantage for employers operating in the state.

For comparison:

• Ohio: Over 600 municipalities levy local income taxes, each with different rates and rules. Employers may need to withhold for multiple cities.
• Pennsylvania: Hundreds of local earned income taxes (EIT) at varying rates, requiring withholding based on where employees live and work.
• Illinois: No municipal income tax. The only local-level employer tax is the Chicago head tax, which is technically a per-employee tax, not an income tax.

This means Illinois employers only need to calculate and remit one state income tax withholding (the flat 4.95%) regardless of which city or county their employees live or work in. No reciprocity agreements to track, no local tax registrations, and no split withholding between jurisdictions.

Year-End Requirements

At the end of each calendar year, Illinois employers have several income tax withholding obligations to complete:

1. Provide W-2s to Employees

Furnish Form W-2 to every employee by January 31 of the following year. The W-2 must show Illinois wages and Illinois income tax withheld in the state-specific boxes (Boxes 15-17).

2. File W-2s with the Social Security Administration

Submit all W-2 forms to the Social Security Administration by January 31. Electronic filing (via the SSA's Business Services Online) is required for employers filing 10 or more W-2s.

3. File Annual Reconciliation

File your fourth-quarter IL-941, which serves as both your Q4 return and your annual reconciliation. The total withholding reported across all four quarterly returns must match the total Illinois withholding reported on all employee W-2s. Any discrepancy will trigger a notice from the Department of Revenue.

4. File W-2s with Illinois

Illinois requires employers to submit copies of W-2s to the Illinois Department of Revenue. This can be done electronically through MyTax Illinois.

Common Withholding Mistakes

Even with Illinois's simpler flat-rate system, employers still make these common errors:

1. Not collecting the IL-W-4: Using only the federal W-4 and skipping the state form. The IL-W-4 is a separate, required document. The federal W-4 does not determine Illinois withholding.
2. Using the wrong rate: The rate is 4.95%, not 4.95 cents. Double-check your payroll system is calculating a percentage, not a flat amount.
3. Ignoring allowances: Withholding on the full gross wage without reducing for IL-W-4 allowances results in over-withholding. Employees will notice and complain.
4. Missing deposit deadlines: Knowing your filing frequency (quarterly, monthly, or semi-weekly) and depositing accordingly. Late deposits trigger penalties immediately.
5. Confusing state and Chicago taxes: The Chicago head tax is not withheld from wages and is not reported on IL-941. Mixing up these obligations causes filing errors.
6. Failing to reconcile at year-end: The total IL withholding on your quarterly IL-941s must match the total on all W-2s. Discrepancies trigger notices and potential audits.
7. Not updating for rate changes: While the rate has been 4.95% since 2017, always verify the current rate at the start of each year in case legislation changes it.
8. Withholding for non-resident employees incorrectly: Employees who work in Illinois but live in Iowa, Kentucky, Michigan, or Wisconsin may be covered by reciprocal agreements. Check the Illinois reciprocal withholding rules before withholding Illinois tax from these employees.

Frequently Asked Questions