Illinois Payroll Compliance Guide 2026: Complete Employer Reference

Illinois Payroll Overview

Illinois sits in a middle tier of payroll complexity — more demanding than Texas or Florida, but structured differently from New York’s multi-tax labyrinth. The state income tax is a flat rate (no brackets to calculate), which simplifies withholding calculations. But 2026 brings something new: Illinois is launching a Paid Family and Medical Leave (PFML) insurance program, joining a growing list of states that require employer participation in state-run leave programs.

Chicago has its own rules. If your employees work in Chicago, you face a higher local minimum wage, Chicago-specific paid leave requirements under the Chicago Paid Leave and Paid Sick and Safe Leave Ordinance, and ongoing updates from the Chicago Department of Business Affairs & Consumer Protection. State rules and Chicago-specific requirements are both covered below.

Illinois Payroll Taxes: 2026 Complete Rate Table

Illinois Income Tax Withholding: 4.95% Flat Rate

Illinois imposes a flat personal income tax rate of 4.95% on all wages. This is a constitutional mandate — Illinois’s constitution requires a flat income tax rate (no graduated brackets). Every employee pays the same 4.95%, regardless of whether they earn $25,000 or $250,000 per year.

For payroll purposes, withholding is simple: multiply gross wages by 4.95% and deduct the employee’s personal exemption allowance. The withholding formula accounts for the employee’s claimed allowances on Form IL-W-4 (Employee’s Illinois Withholding Allowance Certificate).

IL-W-4 vs. Federal W-4

New Illinois employees must complete both a federal W-4 and a state IL-W-4. The IL-W-4 captures the number of personal allowances the employee claims. Each allowance reduces withholding by a set amount per pay period. Employees who do not submit an IL-W-4 are treated as claiming zero allowances, resulting in maximum withholding.

Illinois Withholding Filing

Illinois income tax withholding is reported and paid through the Illinois Department of Revenue’s MyTax Illinois portal at mytax.illinois.gov. Your deposit and filing frequency depends on your total withholding liability, similar to federal:

• Semi-weekly depositors: Total withholding liability of $12,000 or more in the lookback period — deposit within 3 business days of each payroll
• Monthly depositors: $12,000 or less per year — deposit by the 15th of the following month
• Quarterly filers: $1,000 or less per year — file and pay quarterly

Annual reconciliation is filed on Form IL-941 for withholding returns and Form W-2 reporting to employees and the state. Illinois accepts W-2 e-filing through MyTax Illinois.

IDES SUI: Unemployment Insurance

Illinois SUI is administered by the Illinois Department of Employment Security (IDES). The 2026 figures:

• New employer rate: 3.525% (standard rate for employers who have not yet been assigned an experience rate)
• Experienced employer range: 0.725% to 7.625%
• Taxable wage base: $13,590 per employee per calendar year
• Maximum SUI cost at new-employer rate: $479.05 per employee per year (3.525% × $13,590)
• Maximum SUI cost at top rate: $1,035.74 per employee per year (7.625% × $13,590)

The $13,590 wage base is higher than most states, Illinois pays higher unemployment benefits than lower-wage-base states, and the rate reflects that. Your experience rate is recalculated annually by IDES and mailed to you each year. A history of layoffs increases your rate; stable employment drives it down.

IDES Quarterly Filing: Form UI-3/40

Employers file quarterly SUI returns using Form UI-3/40 (Employer’s Contribution and Wage Report) through the IDES online portal at ides.illinois.gov. Quarterly deadlines are the last day of the month following each quarter end: April 30, July 31, October 31, and January 31.

Illinois PFML: Paid Family and Medical Leave 2026

Illinois is launching a statewide Paid Family and Medical Leave (PFML) insurance program in 2026. This program was established through legislation signed in 2023, with contributions set to begin in 2026 and benefits available in 2027 (verify exact timeline with the Illinois Department of Labor, as implementation details were subject to rulemaking as of early 2026).

PFML Contribution Structure

What PFML Covers

The Illinois PFML program is expected to cover leave for:

• The employee’s own serious health condition
• Caring for a family member with a serious health condition
• Bonding with a new child (birth, adoption, build placement)
• Qualifying military exigency events

Benefits are expected to replace a portion of wages, capped at the Social Security wage base. Leave duration is expected to max out at 12 weeks per year.

Illinois Paid Leave for All Workers Act

Separate from the PFML insurance program, the Illinois Paid Leave for All Workers Act went into effect January 1, 2024 and requires most Illinois employers to provide paid leave immediately. This is an accrual-based leave policy requirement, not an insurance program.

How It Works

• Accrual: Employees accrue 1 hour of paid leave for every 40 hours worked
• Maximum: 40 hours of paid leave per 12-month period
• Use: Employees can use the leave for any reason — this is not limited to illness or family care
• Frontloading: You can front-load 40 hours at the start of each year instead of tracking accrual
• Carryover: Unused accrued leave carries over to the next year unless you front-load
• Payout on termination: Unused accrued leave does not need to be paid out at termination unless your policy provides for it
• Coverage: Applies to virtually all private-sector employers; exempt are employers covered by certain city ordinances (Chicago, Cook County, Bloomington, Evanston, Rockford) that provide equivalent or greater benefits

Wage Payment Laws and Final Paychecks

The Illinois Wage Payment and Collection Act (IWPCA) governs wage payment in Illinois and is enforced by the Illinois Department of Labor. It is one of the stronger state wage payment statutes in the country.

Pay Frequency

Illinois does not mandate a specific pay frequency, but wages must be paid at regular intervals no longer than semi-monthly for most employees. Commissions and bonuses may be paid on a different schedule if agreed to in writing.

Final Paycheck Rules

Illinois has a strict final paycheck rule. Employers must pay all final wages at the next regularly scheduled payday. However, for discharged employees, the Illinois Department of Labor interprets the law as requiring payment as soon as possible — standard approach is to pay on the next business day for terminations.

Accrued vacation time must be paid out at termination if your written policy provides for accrual. Illinois treats accrued vacation as earned wages under the IWPCA. A policy that says “use it or lose it” is valid only if the employee had a reasonable opportunity to use the leave.

Deduction Rules

Only legally required deductions and those specifically authorized in writing by the employee are permissible. Deductions for property damage, theft, or shortages require court-ordered judgments in virtually all cases. The Illinois Department of Labor actively investigates unlawful deduction complaints.

Overtime Rules

Illinois follows the federal FLSA for most overtime requirements. For non-exempt employees, the overtime rate is 1.5× the regular rate for hours over 40 in a workweek. Illinois does not impose daily overtime requirements.

One Illinois-specific note: the Illinois Minimum Wage Law applies its overtime provision independently from the FLSA. If an employee is exempt from federal overtime but not from the state minimum wage law’s overtime provisions, you may still owe state overtime. This is a narrow but real distinction for certain agricultural and domestic workers.

New Employer Registration Steps

1. Federal EIN

Apply at irs.gov/ein for immediate online issuance.

2. Register for Illinois Income Tax Withholding

• Where: Illinois Department of Revenue MyTax Illinois at mytax.illinois.gov
• Form: REG-1 (Illinois Business Registration Application)
• When: Before running your first payroll — you need a Business Account ID to make withholding deposits and file IL-941 returns
• What you receive: Business Account ID, initial deposit frequency assignment, access to MyTax Illinois for all state tax filings

3. Register with IDES for SUI

• Where: IDES Employer Registration at ides.illinois.gov
• When: Within 30 days of paying wages or employing one or more workers
• What you receive: IDES Account Number, new-employer SUI rate confirmation (3.525%), access to file quarterly UI-3/40 reports

4. Register for PFML (2026)

Once the Illinois PFML program rules are finalized, employers will register through the administering agency (expected to be coordinated through IDOL at labor.illinois.gov). Monitor IDOL’s website for registration opening dates in 2026.

5. Illinois New-Hire Reporting

Report all new hires to the Illinois New Hire Reporting Center at ilnewhire.com within 20 days of the hire date.

6. Workers’ Compensation Insurance

Illinois requires workers’ comp coverage for virtually all employers with one or more employees. Obtain coverage from a licensed carrier before your first employee’s first day of work.

7. Required Postings

• Illinois Minimum Wage Law poster (IDOL)
• Illinois Paid Leave for All Workers Act notice (IDOL)
• Illinois Unemployment Insurance poster (IDES)
• Illinois Workers’ Compensation poster (IWCC)
• Federal FLSA/minimum wage poster
• OSHA rights poster
• Additional Chicago postings if operating in Chicago

Illinois Minimum Wage 2026

Illinois minimum wage increases $1.00 per year under the Illinois Minimum Wage Law (820 ILCS 105). In 2026, the statewide minimum is $14.00 per hour. The schedule to reach $15.00 is:

The Illinois minimum wage for 2026 is $15.00 per hour statewide as of January 1, 2025. Verify the current effective rate for 2026 at labor.illinois.gov.

Chicago Minimum Wage 2026

Chicago sets its own minimum wage, which is indexed to the Consumer Price Index annually. For 2026:

Chicago tipped employees must receive at least $9.48 per hour in direct wages (for large employers) plus sufficient tips to meet the full minimum wage. If tips don’t cover the gap, the employer makes up the difference.

Cook County Minimum Wage

Cook County (outside Chicago city limits) has its own minimum wage that generally tracks Chicago’s schedule. Verify the current Cook County rate for 2026 at the Cook County Commissioner’s website.

Illinois Payroll Compliance Calendar 2026

Frequently Asked Questions

What is the Illinois SUI rate for new employers in 2026?

New Illinois employers pay IDES SUI at 3.525% on the first $13,590 of each employee’s wages per year, for a maximum of $479.05 per employee. Experienced employer rates range from 0.725% to 7.625% based on your claims history.

What is the Illinois state income tax rate for withholding?

Illinois imposes a flat 4.95% state income tax on all wages. There are no brackets. Every employee pays 4.95% regardless of income. Withholding is based on Form IL-W-4 allowances and the IDOR withholding tables.

What is the Illinois PFML program and when does it start?

Illinois is launching a Paid Family and Medical Leave insurance program in 2026 with a total contribution rate of 0.88% of covered wages, split 50/50 between employer and employee (0.44% each). Benefits are expected to begin in 2027. Confirm the exact contribution start date and program rules at labor.illinois.gov.

What is the Illinois minimum wage in 2026?

The Illinois statewide minimum wage reached $15.00 per hour on January 1, 2025. Chicago’s minimum for large employers (21+ employees) is $16.20 per hour in 2026. Cook County has a separate higher minimum than the state rate. Confirm current effective rates annually.

Does Illinois require employers to provide paid leave?

Yes. The Illinois Paid Leave for All Workers Act (effective January 1, 2024) requires most Illinois employers to provide up to 40 hours of paid leave per year for any reason. Employees accrue 1 hour per 40 hours worked. Certain Chicago and Cook County employers are covered by more stringent local ordinances instead.

What is the Chicago minimum wage for 2026?

Chicago’s minimum wage for employers with 21 or more employees is $16.20 per hour in 2026. Employers with 20 or fewer employees pay $15.80 per hour. Chicago indexes its minimum to CPI annually, so confirm the rate each January with the Chicago BACP.