Illinois Tax & Labor Law Summary
From paydays to tax time and all points in between, our Illinois nanny tax overview details all the tax and labor laws you need to be aware of as a household employer. It also serves as a good summary of what our specialized service does to eliminate all the work and worry for busy families.
When a family hires someone to perform duties in or around their home, they are considered a household employer. The IRS views the worker whether a nanny, health aide, housekeeper, senior caregiver, gardener, chef, personal assistant, estate manager, etc. as an employee of the family in nearly every case. Misclassifying an employee as an independent contractor (using Form 1099) is considered tax evasion, so please call us if you're not sure how to classify your worker.
Household employers have four primary tax responsibilities. These are sometimes referred to as the Illinois nanny tax obligations:
1. Withhold Social Security and Medicare taxes from their employees paycheck each pay period. Federal and state income taxes should be withheld based on the employees selections on Form W-4 and Form IL W4.
* It is not legally required that income taxes be withheld. However, we strongly advise it so that the employee does not have a large tax burden at the end of the year and is not subjected to underpayment penalties.
2. Pay the employers portion of Social Security and Medicare, as well as federal and Illinois unemployment insurance taxes (FUTA and SUTA).
Good news! There are some tax breaks for dependent care that can help offset these employer taxes. For an estimate of your employer costs and your tax breaks as well as your employees take-home pay give us a call.
3. File tax forms with the Illinois Department of Revenue and the Illinois Department of Economic Security, typically on a quarterly basis, and with the IRS in April, June, September and January. New employers are required to pay state income taxes withheld from employees on a monthly basis for the first year.
4. At the end of the year, prepare Form W-2 and distribute to each employee, file Form W-2 Copy A and Form W-3 with the Social Security Administration and file Schedule H with your personal income tax return.
LABOR LAW REQUIREMENTS
The Fair Labor Standards Act (FLSA) provides the framework for federal and state wage and hour law. Household employees are classified under the FLSA as non-exempt workers. Non-exempt workers in all 50 states are covered by the rules and protections of the FLSA. Illinois may supplement the federal law with additional state and municipal labor law.
Minimum wage in Illinois is currently $8.25 per hour.
Cook County minimum wage rate: $11.00 per hour
Chicago minimum wage rate: $12.00 per hour
Note: Whenever more than one rate applies, employers are required to pay the higher rate.
Overtime requirements are not determined by the amount of hours or by the type of pay (hourly or salary); they are determined by the type of work. The FLSA requires domestic workers be protected by overtime laws. The requirements for Illinois household employers are as follows:
- The standard workweek is defined as 40 hours in a 7-day period.
- Illinois employees should be paid at least 1.5 times the regular hourly rate (time-and-a-half) for all hours worked over 40 in a workweek.
- Overtime compensation is not required for live-in employees.
- Overtime is not required to be paid when work is performed on a holiday.
Day of Rest Requirement
Household employees in Illinois that work at least 20 hours per week must be granted at least one day off (24 consecutive hours of rest) each calendar week.
Cook County Sick Time
Household employers in Cook County, IL are required to provide up to 40 hours of paid sick time to their employees each year. Sick time accrues at 1 hour for every 40 hours work, or employers can offer the full 40 hours upfront. Up to 20 hours of unused sick time may roll over to the next year, but employers can limit sick time usage to 40 hours per year. Employers may also restrict employees from using sick time until they have worked 80 hours in a 120 day period. Unused sick time does not need to paid out if the employee is terminated.
Note: The cities/villages of Arlington Heights, Barrington, Bartlett, Bedford Park, Bellwood, Bensenville, Blue Island, Bridgeview, Broadview, Buffalo Grove, Burnham, Burr Ridge, Country Club Hills, Des Plains, East Hazel Crest, Elgin, Elk Grove, Elmwood Park, Evergreen Park, Flossmoor, Forest Park, Glenview, Glenwood, Hanover Park, Harwood Heights, Hazelwood, Hickory Hills, Hillside, Hoffman Estates, Homewood, Justice, La Grange Village, Lynwood, Markham, Matteson, Maywood, Melrose Park, Merrionnette Park, Morton Grove, Mount Prospect, Niles, Norridge, North Riverside, Oak Forest, Oak Lawn, Orland Park, Palatine, Palos Heights, Palos Hills, Park Ridge, River Forest, Riverside, Rolling Meadows, Rosemont, Schaumburg, South Barrington, Streamwood, Summit, Tinley Park, Western Springs, and Wheeling have opted out of this law and do not need to comply.
The current federal mileage reimbursement rate is 58 cents per mile. This rate, which covers the cost of gasoline as well as general wear and tear on the car, should be used to calculate reimbursement payments to an employee who drives her own vehicle while on the job. Mileage reimbursement is not considered taxable compensation, so neither the employee nor the employer is required to pay any taxes on that portion of the compensation.
Note: Miles driven while commuting to and from the jobsite are not considered on the job. If the employer reimburses the employee for commuter mileage, it is considered taxable compensation.
Workers Compensation Insurance: Household employers in Illinois are required to carry a workers compensation insurance policy if any number of household employees work a total of 40 or more hours per week for 13 or more weeks during the year. Its very important insurance, which assists with medical expenses and lost wages if an employee has a work-related injury or illness. It also provides protection to the employer since workers who accept benefits generally forfeit their right to sue the employer regardless of fault. Whether its required in your situation or not, we recommend obtaining coverage. As part of the HomePay setup process, we can guide you to a convenient, affordable solution.
Unemployment Insurance: Illinois unemployment insurance is a state-managed program that provides financial assistance to help laid-off workers make ends meet until they can find another job. This insurance is funded through taxes that employers are required to pay on wages paid to employees. These taxes flow into a general fund, and unemployment benefits are distributed from the fund to employees who are let go from their job due to no fault of their own. The Illinois Department of Economic Security (IDES) determines whether or not an applicant qualifies for benefits after reviewing their online or paper application and/or by conducting a telephone interview. Benefits paid to a former employee by IDES may trigger a future tax rate increase for the employer.
Health Insurance: Household employers in Illinois are NOT required to pay for their employees health insurance. However, there is a tax incentive to do so. Families with only 1 employee can make contributions toward their employees health insurance premiums and treat the amount as non-taxable compensation. In this scenario, neither the employee nor the employer are required to pay any taxes on that portion of the compensation.
Note: Employers with 2 or more employees must purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit.
Families can direct their employees to www.care.com/benefits where they can search for health insurance policies and purchase coverage for themselves.
The information herein is general in nature and may not be applicable to or suitable for your specific circumstances. Accordingly, the information is not intended to be providing legal or tax advice, and should not be relied upon without the advice and guidance of a professional tax or legal advisor.