Illinois Enacts Withholding Tax Credit for Small Employers

Illinois enacted a personal income withholding tax for small employers.

Who Qualifies for the Credit?

Employers with 50 or fewer Illinois full-time employees who make minimum wage can qualify for the credit. An employer must aggregate its employees to determine the threshold if:

– the employer operates more than one franchise; or

– the employer is a unitary business group member.

The credit does not include employees who have worked fewer than 90 consecutive days before the reporting period. But, credits can accrue during that 90-day period for future reporting periods.

An employer is not eligible for credits unless:

– the average wage paid each employee for all employees making less than $55,000 during the reporting period exceeds;

– the average wage paid each employee for all employees making less than $55,000 during the same reporting period in the prior calendar year.

How Much Is the Credit?

The base credit is the difference between wages paid in Illinois during the reporting period to:

– employees who made minimum wage; and

– employees who made less than minimum wage.

The credit cannot exceed the employer’s tax liability for the reporting period.

The amount of the credit equals:

– 25% of the wages paid for 2020 quarterly reporting periods;

– 21% of the wages paid for 2021 quarterly reporting periods;

– 17% of the wages paid for 2022 quarterly reporting periods;

– 13% of the wages paid for 2023 quarterly reporting periods;

– 9% of the wages paid for 2024 quarterly reporting periods; and

– 5% of the wages paid for 2025 quarterly reporting periods.

Employers can continue to claim the credit for tax years beginning on or after January 1, 2026 and:

– ending on or before December 31, 2026 for employers with more than 5 employees; or

– ending on or before December 31, 2027 for employers with no more than 5 employees.

P.A. 101-1 (S.B. 1), Laws 2019, effective February 19, 2019