Illinois Tax Credit to Relieve Minimum Wage Increase

Illinois is offering a new tax credit to relieve the financial burden of the minimum wage increase that took effect on January 1, 2020. Employers with 50 or fewer employees may be eligible for the Minimum Wage Tax Credit, a credit to offset some of their withholding tax. In Illinois, the minimum wage increased to $9.25 per hour on January 1, 2020, and another increase to $10.00 per hour begins on July 1, 2020.

Minimum Wage Tax Credit Eligibility and Calculation

Beginning in 2020, employers who have 50 or less full-time equivalent employees are eligible to offset a portion of the minimum wage cost from their withholding taxes. The maximum credit allowed is 25% of the difference paid by a business due to the minimum wage increase.

What You Need to Know About the Illinois Minimum Wage Tax Credit

  • Your company is eligible if you have 50 or less full-time equivalent employees AND the average wage paid per employee making less than $55K in 2020 > the average wage paid per employee making less than 55K in 2019.
  • “Qualified employee” is one that is earning the required minimum wage for the current reporting period and whose average wage paid during the previous four reporting periods was equal to or less than the current required minimum wage.
  • “Full-time employee” is considered as working 520 hours in a quarter.
  • Salaried employees are considered as working 40 hours per week for the number of weeks during the reporting period (quarterly).
  • Credit cannot be claimed for employees who were employed fewer than 90 total consecutive days immediately preceding the reporting period.
  • The maximum credit for the first and second quarters of 2020 is $6,500, and the maximum credit for the third and fourth quarters is $11,375.
  • In order to receive the credit, you need to attach Schedule WC to form IL-941 or 941-X on your business tax return.

The minimum wage in Illinois will increase $1 every calendar year until 2025, when the minimum wage is $15 per hour. The Minimum Wage Tax Credit will decrease each calendar year through 2026.

To see how to calculate the Minimum Wage Tax Credit, visit the IRS website at: https://www2.illinois.gov/rev/research/news/Pages/Withholding-Income-Tax-Minimum-Wage-Credit.aspx.

How DHJJ Can Help

Businesses should evaluate if they are eligible for relief from the recent minimum wage increase. For more information on the new tax credit or to determine if you will be eligible for this credit please call DHJJ at 630-420-1360 or fill out the form below.

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