Illinois Introduces Tax Credit to Offset the Increased Minimum Wage
On January 1, 2020, the IL minimum wage increased from $8.25 to $9.25 per hour. A second increase, to $10.00 per hour, begins on July 1, 2020. It is then set to increase by $1 on January 1st of each year until it reaches $15.00 per hour.
Beginning with the first quarter of 2020, Illinois adopted a tax credit to help offset the higher labor cost associated with the increase in the minimum wage. In order to be eligible for the credit, an employer must meet the following two criteria:
The employer must have 50 or fewer full-time equivalent employees, and
The average wage per employee making less than $55,000 per year in 2020 must be more than the average wage paid per employee during the same reporting period in 2019.
An employer meeting these two criteria may take a credit against their Illinois state withholding for a percentage of the difference between the current minimum wage and the wage actually paid during the reporting period prior to the January 1st increase. The applicable rate for 2020 is 25 percent.
For example, if an employee earned $8.75 per hour in the quarter ended December 31, 2019, and is paid $10.00 per hour for 200 hours in the quarter ended March 31, 2020, the employer is entitled to a $25 credit representing the $.50 per hour difference between the current minimum wage and the prior wage rate paid, multiplied by the total of 200 hours worked, multiplied by the 25% rate for 2020. ($.50 * 200 hours * 25%).
Note that the credit only applies to the difference between the current minimum wage amount and the prior year actual wage rate paid. Any wage paid in excess of the current year minimum wage of $9.25 is excluded in the calculation.
The credit is reported when filing the quarterly IL-941 on Schedule WC. The credit is non-refundable, and cannot be carried over. If an employer is eligible for the credit but did not claim it in the first quarter of 2020, form 941-X may be filed to claim the credit.
Please contact our office if you have questions or would like assistance in determining whether you are eligible for this credit.
About the Author - Mark Neeb, Manager, CPA, ECS Financial Services, joined the firm in 2014 and has over 20 years of experience in public accounting. Mr. Neeb's areas of expertise include business and individual income tax, tax planning, real estate accounting, as well as review and compilation engagements, and financial statement preparation. Mr. Neeb is a licensed CPA in the state of Illinois and holds a Master of Science in Taxation degree from DePaul University, and a Bachelor of Business Administration degree from the University of Wisconsin - Eau Claire.