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Illinois Fact Sheet Household Tax Compliance Tips

HOMEWORK SOLUTIONS IS HERE TO HELP!

Payroll tax compliance for your new employee does not need to be terrifying, time consuming or expensive. HomeWork Solutions is a nationally recognized “household payroll” service company, providing household employers nationwide with trusted and time saving payroll and payroll tax solutions.

WORKER CLASSIFICATION IS THE KEY

You become a household employer when you hire an individual to perform duties and provide services under your direction in your private home. Generally, these workers are your employees, not independent contractors. Failure to properly classify the worker and make the appropriate employment tax filings and payments is considered tax fraud by the IRS.

PAYROLL TAX RESPONSIBILITIES

You are responsible for federal employment taxes when you pay household workers as little as $1,000 in a calendar quarter or when you pay any individual employee age 18 or over $2,700 in a calendar year.

You have both Federal and State tax filing responsibilities. Federal employment taxes are reconciled with the household employer’s annual Federal Income tax return. Your state may require quarterly unemployment tax filings, as well as reports and remittance of state income taxes withheld, if applicable. Employee wages are reported to the Social Security Administration. Your employee is due a W-2 form in January.

Social Security and Medicare Taxes

The household employer is responsible for the payment of all Social Security and Medicare taxes to the IRS. You may choose to either collect your employee’s taxes via payroll deductions or fund these taxes yourself.

Unemployment Taxes

You will make contributions to the IRS and Illinois to fund unemployment and worker re-training programs.

Income Taxes

Federal and state income taxes are ultimately the responsibility of the household employee; however, best practice is to deduct these taxes from your full time employee’s wages to help them avoid owing large sums when they file their annual income tax returns.

OTHER LEGAL RESPONSIBILITIES

Verification of Work Eligibility

All U.S. employers are required to verify a candidate’s employment eligibility using Form I-9.

Fair Labor Standards Act (FLSA) Compliance

Maintain accurate and contemporaneous records including time tracking, gross pay calculations, and detailed records of all deductions from the employee paycheck.

Pay no less than minimum wage on an hourly rate basis.

Health Insurance

You are not required to provide employee health insurance, however there are financial and retention advantages to contributing some or all of your employee’s health insurance premium. HWS is happy to discuss this with you.

ILLINOIS LABOR LAWS

Minimum Wage

Illinois requires that all domestics, including companions, be paid at no less than the greater of the state or federal minimum wage. This is in addition to compliance with the FLSA.

Illinois minimum wage is $14.00/hr. This rate will increase by $1/hr on January 1st of each year until minimum wage is $15/hr in 2025.

Chicago minimum wage is $16.20/hr.
Cook County minimum wage is $14.05/hr.

Overtime Pay

All live-out workers are to be paid an overtime differential of 1.5 times the hourly wage for hours over 40 in a work week. Live-in domestics, again including companions, must be paid their hourly wage for all hours worked, without an overtime differential. Overtime or premium pay is not required for hours worked in excess of 8 per day or on weekends or holidays.

Illinois has a Domestic Workers Bill of Rights which includes a requirement of at least 24 hours of rest each calendar week for each employee. If your employee voluntarily agrees to work on their day of rest, they must be paid at the overtime rate for all hours on that day.

Paid Time Off

The Illinois Paid Leave for All Workers Act requires that all workers earn one hour of paid leave for every 40 hours worked, with accrual up to 40 hours in a year. Paid leave can be used for any reason withoug providing a basis for the request, and the full hourly wage must be paid for paid leave used.

The City of Chicago requires employees accrue 1 hour of paid sick leave AND 1 hour of Paid Leave for every 35 hours worked, up to a maximum of 40 hours of Sick Leave and 40 hours of Paid Leave in a year. Unused hours roll over to the new year, provided banked hours do not exceed 40 hours for either leave type. Employers pay opt to front-load 40 hours of Paid Leave and 40 hours of Sick Leave rather than us the accrual method.
Cook County requires employers to accrue 1 hour of paid sick leave for every 40 hours worked, up to a maximum of 40 hours in a year. Unused hours roll over to the new year, provided banked hours do not exceed 60 hours. Some suburbs within Cook County have opted out of these additional paid leave requirements. In those suburbs in Cook County, these requirements do not apply.

You are required to pay accrued vacation leave upon separation from employment.

Mileage Reimbursement

The federal government establishes and updates a maximum rate for non-taxable mileage reimbursement each year. The current rate is $0.67 per mile.

Payroll Frequency

Illinois requires all household workers to be paid daily, weekly, bi-weekly or semi-monthly, but does not allow monthly wage payment. Pay upon separation is due on the next scheduled pay date.

Payroll Documentation

You must notify employees of any changes to their rate of pay or the time and place of their payday before you make the change.

Each time you pay an employee, you must also give them an itemized statement of deductions made from their wages.

Employment Contract Requirements

Illinois does not have employment contract requirements. However, a free sample work agreement can be found here.

The City of Chicago requires written contracts detailing wages and work schedules, provided in the worker’s preferred language.

Workers’ Compensation Insurance

Illinois requires that all household employers obtain Workers’ Compensation Insurance. A policy can usually be obtained easily and cost effectively by contacting your Homeowner’s or Renter’s Insurance provider. HWS can help you obtain this insurance through our insurance partner (just give us a call).

State Unemployment Insurance

Illinois requires a new employer state unemployment insurance tax of 3.950% for the first $13,590 wages paid to each employee. This may vary if you have previous employees.

Frequency of Tax Filings

Illinois requires monthly or quarterly tax filing of unemployment insurance and quarterly or annual tax filing of income withholding tax. HWS recommends filing quarterly.

Domestic Workers Bill of Rights

Illinois has a Domestic Workers Bill of Rights which applies to household employees working at least eight hours a week, including live-in employees and workers employed by an agency.

Minimum wage hourly pay.
24 hours of rest each calendar week and a 20-minute meal break for every 7.5 hours worked.
Protection against sexual harassment and oppressive wages.
Overtime pay for voluntary work on the day of rest.
24 hours of rest in seven consecutive days and an additional 20-minute unpaid break after 12 hours of work.

Pregnancy Fairness Law

Illinois has a pregnancy fairness law to protect pregnant women and new mothers from discrimination and retaliation in the workplace. Among other requirements, you must provide reasonable accommodations as long as the accommodations do not cause undue hardship. This is further explained here.

Compensation Upon Termination

Employers are required to pay out accrued but unused vacation leave upon separation from employment.

HWS WILL HELP YOU DO THE RIGHT THING

HWS knows that most families want to pay their household employees legally and ensure that the employee receives workers compensation and unemployment insurance protections. You also want to establish a principled relationship with your employee who is caring for and interacting with precious family members. Getting the relationship started on the right footing, including complying with legal and tax formalities, helps set the tone for the relationship.