Illinois Tax Withholding Law

The Illinois Department of Revenue sets the state tax withholding laws.

Employers in Illinois are required to withhold state income tax and federal payroll tax. The Illinois Department of Revenue administrates the state income tax withholding regulations.

Criteria

Employers required to withhold federal income tax from payments in Illinois are also required to withhold Illinois income tax. The Illinois Department of Revenue defines payments as wages and salaries paid in Illinois, or lottery or gambling winnings earned in Illinois and paid to an Illinois resident. The employer must register with the Illinois revenue agency to withhold the state income tax.

Method

The employer uses IRS Circular E and the employee's W-4 form to figure federal income tax. It figures Social Security and Medicare taxes at 6.2 percent and 1.45 percent of gross income, respectively. The employer pays these taxes to the Internal Revenue Service. The employer uses Form IL-W4, Employee's Illinois Withholding Allowance Certificate and the Illinois withholding tax tables to figure the state income tax withholding. It pays the latter to the Illinois Department of Revenue.

Considerations

If the employee doesn't submit a Form IL-W-4, the employer can withhold Illinois state income tax at zero exemptions---the highest tax bracket. To claim exemption from Illinois withholding tax, the employee must complete Form IL-W-5-NR, Employee's Statement of Nonresidence in Illinois.

References

• Illinois Department of Revenue: Withholding (Payroll)
• Illinois Department of Revenue: Publication 130
• IRS: 2010 Circular E

Resources

• Read this Article in Spanish
• Illinois Department of Revenue: Withholding Tax Tables
• Illinois Department of Revenue: Form-IL-W-4
• Illinois Department of Revenue: Form-IL-W-5-NR
• IRS: 2010 Circular E