What does Illinois General Information Letter IT 23-0003-GIL conclude about Credits?

Plain-English summary

An Illinois employer of tipped workers asked the Department three questions about the state's minimum wage tax credit -- an income/PPRT credit for employers found at 86 Ill. Adm. Code 100.7390. The Department answered two of the three questions and left the third unaddressed.

On tips: the employer asked whether the credit is computed using a tipped employee's base tipped pay rate (mentioned in the letter as roughly $4.95-$6.00/hour) or their total wages including tips (needed to reach the $8.25-$10.00/hour minimum wage range mentioned). The Department's answer, drawn from 86 Ill. Adm. Code 100.7390(f) and 100.3100, is that the credit equals the sum of total compensation paid in Illinois to eligible employees who earned no more than the current minimum wage during the reporting period, minus compensation paid to employees earning less than the current minimum wage during the fourth quarter of the prior calendar year. Critically, tips themselves are not "compensation" for this calculation -- but if the employer pays extra to make up a shortfall so that wages plus tips reach the required minimum wage, that make-up payment is compensation and counts toward the credit.

On employees already earning well over minimum wage with tips: the Department's general computation rule effectively answers this too -- the credit only applies to compensation for employees who earned no more than the current minimum wage, so employees whose actual (non-tip) compensation already exceeds that threshold would not generate a credit in the first place.

On the 90-day requirement and COVID layoffs: the Department restated the general rule at 86 Ill. Adm. Code 100.7390(e)(2) -- no credit can be claimed for an employee who hasn't worked at least 90 consecutive days, but the credit still accrues for that period's wages and can be claimed in a later reporting period once the employee completes 90 consecutive days. The letter does not say whether a COVID-related layoff interrupts or resets that consecutive-day count, or whether time worked before a pandemic shutdown still counts toward it. That specific question, which the taxpayer asked directly, was left unresolved in the Department's response.

What this means for you

Restaurant and hospitality employers with tipped staff

When you compute the minimum wage credit, exclude tips from each tipped employee's compensation. Only include the wages you actually pay -- plus any amount you pay specifically to cover a shortfall between tipped wages and the required minimum wage. If an employee's tips push their effective hourly earnings well above minimum wage, that does not by itself disqualify the underlying wage compensation from the calculation; what matters is whether their compensation (excluding tips) fell at or below the current minimum wage during the relevant period.

Small-business payroll administrators

Don't lose track of employees who haven't hit 90 consecutive days of work yet -- you can't claim a credit for their wages in the current reporting period, but the credit isn't forfeited. Keep records so you can claim it retroactively once they cross the 90-consecutive-day mark in a later reporting period.

Employers with COVID-era or other layoffs/furloughs affecting the 90-day count

Be aware that this GIL does not answer whether a layoff (COVID-related or otherwise) breaks the "consecutive" days count, or whether service before a shutdown still counts once an employee returns. The Department's response restates the general 90-day accrual rule but never addresses the interruption question the taxpayer specifically raised. If this scenario applies to you, consider requesting your own guidance (a Private Letter Ruling gives binding, taxpayer-specific certainty; see 2 Ill. Adm. Code 1200.110) rather than relying on this GIL to resolve it.

Accountants preparing employer tax credits

Structure your minimum wage credit workpapers to separate (1) base compensation from (2) tips and (3) any employer-paid shortfall make-up amounts, since only (1) and (3) count as "compensation" under 86 Ill. Adm. Code 100.3100 for purposes of 100.7390(f). Track each employee's consecutive days of service carefully, since the 90-day threshold in 100.7390(e)(2) determines when -- not whether -- accrued credit amounts become claimable.

Common questions

Q: Do I use a tipped employee's tipped pay rate or their total wages (including tips) to compute the minimum wage credit?
A: Neither exactly. Per 86 Ill. Adm. Code 100.7390(f) and 100.3100, you use the employee's compensation (their wages, not tips) for the reporting period, provided that compensation is at or below the current minimum wage. Tips are excluded from "compensation." However, any amount you as the employer pay to make up a shortfall so wages plus tips reach the required minimum wage does count as compensation.

Q: Can I skip claiming the credit for employees who earn well over minimum wage once tips are counted?
A: The credit calculation itself only picks up compensation for employees who earned no more than the current minimum wage during the period (excluding tips from that comparison for compensation purposes, per the Department's response). If an employee's actual wage compensation exceeds that threshold, their wages would not generate a credit regardless of how much they earn in tips.

Q: Does a COVID-related layoff interrupt the 90-consecutive-day requirement for the credit?
A: The Department's response does not say. It restates the general rule that no credit may be claimed until an employee has worked 90 consecutive days, and that the credit still accrues and can be claimed in a later period once that threshold is met -- but it never specifically addresses whether a layoff (COVID-related or otherwise) breaks the "consecutive" count, or whether pre-shutdown employment still counts toward it. That question, asked directly by the taxpayer, was left unanswered in this letter.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter, which merely directs the taxpayer to relevant regulations; it is not a statement of Department policy and is not binding on the Department. A taxpayer wanting a binding, fact-specific answer -- including on the unaddressed COVID-layoff question -- would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Citations and references

Regulations cited:

• 86 Ill. Adm. Code 100.7390(f) -- computation of the minimum wage credit: total compensation paid to eligible employees earning no more than the current minimum wage, less compensation paid to employees earning less than the current minimum wage in the prior year's fourth quarter
• 86 Ill. Adm. Code 100.3100 -- definition of "compensation," under which tips are excluded but employer shortfall make-up payments are included
• 86 Ill. Adm. Code 100.7390(e)(2) -- no credit for employees who have not worked at least 90 consecutive days, though the credit still accrues and may be claimed once that threshold is met

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2023/it23-0003-gil.pdf

Original ruling text

IT-23-0003-GIL 05/25/2023 CREDITS
Computing the minimum wage credit for tipped employees and impact of layoffs
on the 90-day requirement (This is a GIL).
May 25, 2023
NAME/ADDRESS
Dear NAME:
This letter is in response to your letter in which you requested information about
computing the minimum wage credit. The Department issues two types of letter rulings.
Private Letter Rulings (“PLRs”) are issued by the Department in response to specific
taxpayer inquiries concerning the application of a tax statute or rule to a particular fact
situation. A PLR is binding on the Department, but only as to the taxpayer who is the
subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for
PLRs found in the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose
of a General Information Letter (“GIL”) is to direct taxpayers to Department regulations
or other sources of information regarding the topic about which they have inquired. A
GIL is not a statement of Department policy and is not binding on the Department. See
2 Ill. Adm. Code 1200.120. You may access our website at www.tax.illinois.gov to
review regulations, letter rulings and other types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
We have several questions about figuring the minimum wage credit.
We were advised by the IDOR representative to write the legal
department for clarification on this matter.
How do you treat the employees that are tipped, do you use their
pay rate or their total wages including their tips earned?
When we called the hotline they recommended using the tipped
wage $4.95-$6.00 to figure the credit. However, employers are required to
make up any shortfalls in earnings that the servers may have to make sure
they are earning the minimum wage of $8.25-$10.00/hour. There are also
employees that earn well over minimum wage when including their tips,
and we don't want to take a credit if they are not allowed.
The other question is the 90-day requirement, if the employee was
laid off due to Covid does that take away from their terms of
employment, or do we consider them working if they were employed
before the shutdowns?
DEPARTMENT’S RESPONSE:

BUSINESS
Page 2
May 25, 2023
IDOR regulation 86 Ill. Admin. Code 100.7390(f) provides that the minimum wage
credit is computed by taking the sum of the total compensation paid in Illinois to eligible
employees who earned no more than the current minimum wage during the reporting
period less the total compensation paid in Illinois to employees earning less than the
current minimum wage during the fourth quarter of the calendar year prior to the
reporting period. Tips would not be considered compensation, but any amount paid by
the employer to ensure the employee’s wages plus tips reach the required minimum
wage would be compensation. See 86 Ill. Admin. Code 100.3100.
In addition, no credit may be claimed for employees who have not worked for at
least 90 consecutive days, but the credit still accrues, and those wages may be claimed
in a future reporting period after the employee has worked 90 consecutive days. See 86
Ill. Admin. Code 100.7390(e)(2).
I hope this information is helpful. If you require additional information, please
visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,
Brian Fliflet
Deputy General Counsel