By Payroll and Entitlements Editorial Staff
Illinois adopted a permanent regulation on the withholding tax credit for small employers who pay minimum wage to their employees. Eligible employers can claim the credit against Illinois corporation and personal income tax liability.
Who qualifies for the credit? Employers with 50 or fewer Illinois full-time employees who make minimum wage can qualify for withholding tax credit. 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 quarterly tax reporting period is more than 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 amount of the credit is:
- 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. (86 Ill. Adm. Code Sec. 100.7390, Illinois Department of Revenue, effective October 13, 2020).
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