Illinois employers must deduct certain taxes from each employee's paycheck. Both state and federal laws dictate conditions and amounts for payroll deductions. Participation in a qualified plan, such as a section 125 cafeteria plan, may reduce an employee's payroll tax deductions since contributions are subtracted before computing taxes. When determining the proper amount of payroll taxes, the employer must consider as income commissions, tips, bonuses and other compensation.
Both federal and state taxes are withheld from paychecks in Illinois. This includes Social Security taxes, income tax, and Medicare taxes.
Federal Income Tax
Unless an employee submits a Form W-4 claiming exemption, the employer must deduct federal income tax. The Internal Revenue Service issues Publication 15, Employer's Tax Guide, each year, which contains tax tables employers can use to determine the proper amount of federal income tax to deduct.
Illinois State Income Tax
If an employer must withhold federal income tax, or if the employee makes a voluntary request for such a deduction, the employer must deduct Illinois state income tax. As of 2018, the state income tax rate for Illinois is 4.95 percent of income after deducting for allowances the employee claims on IL-W-4. Employers can find the exact amount to deduct by consulting the tax tables in Booklet IL-700-T.
Social Security Tax
Employers must withhold Social Security taxes from an employee's paycheck. The rate is 6.2 percent in 2018. Employers must deduct Social Security taxes on the first $128,400 in earnings each year. Even if an employee is exempt from federal income tax, the employer must still deduct Social Security taxes. On your paycheck and tax forms, you'll see Social Security taxes combined with Medicare taxes and called "FICA." FICA stands for Federal Insurance Contributions Act, which is the piece of legislation that put these withholdings in place.
Employers in Illinois must deduct 1.45 percent from each employee's paycheck. Unlike Social Security, all earnings are subject to Medicare taxes. Employees who file for exemption from federal income tax must still have Medicare taxes withheld from their payroll checks.
Additional Medicare Tax
There is an Additional Medicare Tax of 0.9 percent withheld from employee's paychecks if they earn more than $200,000 annually, regardless of their income tax filing status or wages earned at another job. If you're married filing jointly, you'll see the 0.9 percent taken out of your paycheck if you earn $250,000 or more.
Illinois does not permit employers to deduct the cost of state unemployment taxes, or SUTA, from an employee's paycheck. The federal government does not permit employers to deduct federal unemployment tax, or FUTA, from employees in any state.
- Illinois State University: State of Illinois income tax rate increased to 4.95 percent
- IRS: Topic Number: 751 - Social Security and Medicare Withholding Rates
- IRS: Understanding Employment Taxes
- Forbes: IRS Releases New 2018 Withholding Tables To Reflect Tax Law Changes
- IDES: Unemployment Taxes & Reporting
- Internal Revenue Service. "About Form W-2, Wage and Tax Statement." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Self-Employed Individuals Tax Center." Accessed Feb. 6, 2020.
- Internal Revenue Service. "General Instructions for Forms W-2 and W-3 (2019)." Accessed Jan. 22, 2020.
- Internal Revenue Service. "2020 Form W-2," Page 2. Accessed Jan. 24, 2020.
- Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed Jan. 22, 2020.
- Internal Revenue Service. "Prior Year Products." Accessed Feb. 6, 2020.
- Internal Revenue Service. "About Form W-4, Employee's Withholding Certificate." Accessed Feb. 6, 2020.
- Internal Revenue Service. "Forms and Associated Taxes for Independent Contractors." Accessed Jan. 22, 2020.
- U.S. Department of Education. "1098-E Tax Form." Accessed Jan. 22, 2020.
Jeffrey Joyner has had numerous articles published on the Internet covering a wide range of topics. He studied electrical engineering after a tour of duty in the military, then became a freelance computer programmer for several years before settling on a career as a writer.