Illinois Payroll Taxes 2026: Complete Overview for Employers

If you employ workers in Illinois, you have a set of state payroll tax obligations on top of your federal requirements. The good news: Illinois is simpler than many states. There is no state disability insurance program, no paid family leave tax, and no employer training tax. The income tax rate is a flat percentage rather than a progressive bracket system.

That said, "simpler" does not mean "optional." Illinois employers must correctly withhold state income tax, pay into the state unemployment insurance fund through IDES, file quarterly returns, and meet specific deadlines. If you operate in Chicago, there is an additional head tax to manage. This guide covers every state-level payroll tax obligation Illinois employers face in 2026.

Overview of Illinois Payroll Taxes

Here is a summary of the state-level payroll taxes that apply to Illinois employers:

In addition to these state taxes, all Illinois employers must also handle federal payroll taxes including Social Security, Medicare, federal income tax withholding, and FUTA. Those are covered in our federal payroll tax guide.

Illinois State Income Tax Withholding

Illinois imposes a flat 4.95% individual income tax rate. Unlike states with progressive tax brackets (such as California or New York), every dollar of taxable wages in Illinois is taxed at the same rate. This makes withholding calculations straightforward.

The IL-W-4 Form

Every employee must complete an IL-W-4, Employee's Illinois Withholding Allowance Certificate, when starting employment. This form tells the employer how many allowances the employee is claiming. Each allowance reduces the amount of wages subject to withholding. Do not use the federal W-4 for Illinois withholding — they are separate forms.

If an employee does not submit an IL-W-4, the employer must withhold at zero allowances (the maximum withholding amount).

How to Calculate Withholding

The basic withholding calculation is:

1. Start with gross wages for the pay period
2. Subtract the allowance amount — multiply the number of allowances claimed on the IL-W-4 by the per-allowance value published annually by the Illinois Department of Revenue
3. Multiply the result by 4.95% — this is the Illinois income tax to withhold

Because the rate is flat, there are no tax brackets to look up. The only variable is the number of allowances the employee claims.

Filing: Form IL-941

Employers report and remit withheld Illinois income tax by filing Form IL-941, Illinois Withholding Income Tax Return, on a quarterly basis through the MyTax Illinois portal. Depending on the amount of tax withheld, some employers may be required to make semi-weekly or monthly deposits rather than quarterly payments.

At year-end, employers must also file W-2s with the Illinois Department of Revenue, reporting total wages and Illinois income tax withheld for each employee.

State Unemployment Insurance (SUI)

Illinois state unemployment insurance is administered by the Illinois Department of Employment Security (IDES). SUI is an employer-paid tax — employees do not contribute.

New Employer Rate

If you are a new employer with no experience rating history, your SUI rate for 2026 is 3.175%. This rate applies until you have accumulated enough payroll history for IDES to calculate your experience-based rate (typically after about three years).

Experienced Employer Rates

Once you have an experience rating, your SUI rate will fall within the range of 0.675% to 6.875% for 2026. Your specific rate depends on your experience rating — essentially, how many unemployment claims have been filed by your former employees relative to your taxable payroll. Employers with fewer claims get lower rates.

IDES sends a Contribution Rate Determination notice each year (typically in December or January) telling you your rate for the coming year.

Wage Base

For 2026, Illinois SUI tax applies to the first $13,271 of wages paid to each employee during the calendar year. Once an employee's year-to-date wages exceed $13,271, no additional SUI tax is due for that employee for the remainder of the year.

Filing: Form UI-3/40

Employers file Form UI-3/40, Employer's Contribution and Wage Report, on a quarterly basis with IDES. This report includes both the tax payment and wage detail for each employee. Filing is done through the IDES TaxNet system.

No SDI Program

Illinois does not have a state disability insurance (SDI) program. Unlike states such as California, New York, New Jersey, and Hawaii, Illinois does not require employers or employees to contribute to a state-run short-term disability fund.

This means:

• No SDI tax withholding from employee wages
• No employer SDI contributions
• No state-mandated disability benefit payments to employees

Employers may choose to offer private short-term or long-term disability insurance as a voluntary benefit. Many Illinois employers do offer private disability coverage as part of their benefits package, but it is not a state legal requirement.

Chicago Head Tax

If your business operates in the City of Chicago and employs 50 or more employees, you are subject to the Chicago Employer's Expense Tax, commonly known as the "head tax."

The head tax is $4.00 per employee per month for each employee who works in Chicago. The tax is filed and paid quarterly through the City of Chicago Department of Finance.

Key details:

• Threshold: Applies only to employers with 50 or more employees
• Rate: $4.00 per employee per month
• Filing: Quarterly
• Applies to: Employees who physically work within Chicago city limits

Employers with fewer than 50 employees are exempt from the head tax. If you have locations both inside and outside Chicago, only employees working within city limits count toward both the threshold and the tax itself.

Where and How to Pay

Illinois employers use two primary online portals for state payroll tax payments:

MyTax Illinois (Illinois Department of Revenue)

MyTax Illinois is the online portal for all state income tax withholding obligations. Use it to:

• File Form IL-941 (quarterly withholding return)
• Make withholding tax payments (quarterly, monthly, or semi-weekly depending on your filing frequency)
• File annual W-2 transmittals
• Manage your withholding account

Visit mytax.illinois.gov to register and access your account.

IDES TaxNet (Illinois Department of Employment Security)

IDES TaxNet is the online portal for state unemployment insurance. Use it to:

• File Form UI-3/40 (quarterly contribution and wage report)
• Make SUI tax payments
• View your contribution rate
• Manage your IDES employer account

Visit ides.illinois.gov to register and access TaxNet.

Filing Schedules and Deadlines

Quarterly IL-941 Deadlines (Income Tax Withholding)

Note: Employers who withhold more than $12,000 per year in Illinois income tax must make deposits on a semi-weekly or monthly schedule rather than quarterly. The IL-941 return is still filed quarterly, but payments are made more frequently. Check your specific filing frequency with the Illinois Department of Revenue.

Quarterly UI-3/40 Deadlines (SUI)

Annual W-2 Filing

Employers must file copies of all W-2 forms with the Illinois Department of Revenue by January 31 of the following year. W-2s can be submitted electronically through MyTax Illinois. If you have 250 or more W-2s, electronic filing is mandatory.

Penalties for Late Filing and Payment

Illinois imposes penalties for failing to file returns or pay taxes on time:

Income Tax Withholding Penalties

• Late filing penalty: The greater of $250 or 2% of the tax due for each month (or fraction of a month) the return is late, up to a maximum of 25% of the tax due
• Late payment penalty: 2% of the amount due for the first month, increasing by 2% per month up to a maximum of 20% of the tax due
• Interest: Accrues on unpaid tax from the original due date at a rate set quarterly by the Illinois Department of Revenue
• Failure to withhold: Employers who fail to withhold Illinois income tax from employee wages can be held personally liable for the tax amount

SUI Penalties

• Late filing: IDES assesses penalties for late UI-3/40 filings
• Late payment: Interest accrues on unpaid SUI contributions from the due date
• Failure to register: Operating as an employer without registering with IDES can result in penalties and back-assessment of contributions

The simplest way to avoid penalties is to file and pay on time, every quarter. If you use payroll software like , filings and payments are handled automatically.

Don't Forget Federal Payroll Taxes

State taxes are only part of the picture. Every Illinois employer must also handle federal payroll obligations:

• Social Security tax: 6.2% employer + 6.2% employee on wages up to $176,100 (2026)
• Medicare tax: 1.45% employer + 1.45% employee on all wages (plus 0.9% Additional Medicare Tax on employee wages over $200,000)
• Federal income tax withholding: Based on employee's W-4 and IRS tax tables
• FUTA: 6.0% employer-paid on first $7,000 per employee (effectively 0.6% after state credit)

For the complete breakdown, see our Federal Payroll Taxes Explained guide.

Frequently Asked Questions