Withholding Taxes: Illinois

Federal law and guidance on this subject should be reviewed together with this section.

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. 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.
• An employer must provide its employees with an Earned Income Tax Credit notice, which must be updated annually. See Earned Income Tax Credit Notices.
• Employers must keep certain payroll records for at least three years. See Recordkeeping Requirements.