Illinois employers must deduct certain taxes from each employee's paycheck. Both state and federal laws dictate conditions and amounts for payroll deductions. Employee participation in a qualified plan, such as a section 125 cafeteria plan, may reduce his 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.
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 2013, the state income tax rate for Illinois is 5 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 2013. Employers must deduct Social Security taxes on the first $113,700 in earnings each year. Even if an employee is exempt from federal income tax, the employer must still deduct Social Security taxes.
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
Effective in 2013, there is an Additional Medicare Tax of .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.
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 Department of Revenue: Withholding (Payroll)
- Illinois Department of Revenue: Booklet IL-700-T, Illinois Withholding Tax Tables
- Internal Revenue Service: Publication 15 (Circular E), Employer's Tax Guide
- Social Security Administration: Social Security and Medicare Tax Rates
- Social Security Administration: Social Security and Medicare Tax Rates, Maximum Earnings
- Internal Revenue Service: Q and A on the Additional Medicare Tax
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