Illinois State Taxes: What You Need to Know

Welcome to your Illinois Taxes primer, also written as IL Taxes, Illinois State Taxes, or simply Illinois Taxes. This comprehensive guide embeds all rate data for tax year 2025 and shows how to calculate what matters for residents, retirees, businesses, and executors. To keep you on the page, just two outbound links are included to official state guidance.

All rates and examples are current as of February 12, 2026.

 

Personal Income Tax

• Illinois levies a flat 4.95% income tax on Illinois net income. Illinois does not use a federal style standard deduction or itemized deductions; instead, taxpayers generally claim an Illinois exemption allowance and other Illinois specific subtractions and credits when applicable. The flat rate applies to wages, interest, dividends, capital gains, rents, and most other taxable income.
• Retirement income is exempt from Illinois income tax when it is included in your federal taxable portion reported on IL-1040, for example distributions from qualified plans (including 401(k)s), IRAs, government retirement or disability plans, state and local government deferred compensation plans, railroad retirement income, and the federally taxed portion of Social Security. Severance pay is not retirement income and is generally treated as taxable compensation.
• Filing forms: IL‑1040 for residents; nonresidents and part year residents generally use IL‑1040 and attach Schedule NR.

Example 1:

Full‑Time Worker, $80,000 W‑2 Income (Chicago resident):

Adjusted Illinois taxable income = $80k (no retirement sources)

Illinois tax (4.95%) = $3,960

Retirement income added? = $0

 

Example 2:

Married Retired Couple: $45,000 Pension + $20,000 Social Security

Illinois taxable portion = $0 as both sources are exempt; no state income tax due; still file to claim other credits.

 

Sales & Use Tax

• Base sales and use tax is 6.25% on general merchandise; qualifying drugs and medical appliances are taxed at 1%. As of January 1, 2026, Illinois eliminated the state 1% grocery tax, but municipalities and counties may impose a local grocery tax of exactly 1% by ordinance, and some regional grocery taxes may still apply.
• Local governments (home‑rule cities, counties, transit districts and business zones) can add up to 4.75%, pushing total rates as high as 11%.
• Illinois applies destination-based Retailers’ Occupation Tax rules to remote retailers and marketplace facilitators, and beginning January 1, 2025, to certain Illinois retailers making sales from outside Illinois to Illinois customers. If tax is not collected on a taxable purchase, Illinois use tax may still be owed by the purchaser.
• MyTax Illinois Tax Rate Finder is the official tool to check your exact combined rate by address, and is updated regularly with local changes.

 

Example: Buying in Chicago, Cook County (Retailer Occupation + RTA + City):

• State: 6.25%
• Chicago municipal: 1.25%
• Cook County: 1.75%
• Regional Transportation Authority: 1%

Combined rate = 10.25% (as of July 2025; may vary by precinct)

 

Use‑Tax Scenario

Out‑of‑state online purchase of $1,200 not taxed at sale.

Illinois use tax due = 6.25% + local surtax depending on delivery address.

 

Property Tax

• Illinois has no statewide property tax; all property taxes are imposed by local governments (school districts, counties, municipalities, etc.).
• Effective property tax burden averages 1.83%–1.95% of owner‑occupied home value, placing it among the highest in the U.S.
• Senior relief programs include:
  • Senior Citizens Homestead Exemption (≈ $8,000 equalized assessed value reduction in Cook County, $5,000 elsewhere)
  • Senior Citizens Assessment Freeze
  • Property Tax Assessment Freeze Exemptions and Deferral options.

 

Example:

Homeowner in Lake County, assessed value $300,000, effective rate 1.90%:

Property tax = $5,700/year before any exemptions

 

Corporate Income & Replacement Tax

• For C‑corporations, Illinois applies:
  • 7 % corporate income tax (Business Income Tax) on net income
  • 2.5 % personal property replacement tax for C corporations

Overall burden: ≈ 9.5 % on net income.

• Pass‑through entities (S‑corporations, partnerships, and trusts) pay only the 1.5 % replacement tax; Illinois wages and personal pass‑through income pass through to individual returns at 4.95 %.

 

Example:

Illinois C‑Corp net income $850,000:

• BIT: $850,000 × 7.0 % = $59,500
• Replacement tax: $850,000 × 2.5 % = $21,250

Total corporate burden: $80,750

 

Estate Tax

• Illinois has no inheritance tax, but it does levy an estate tax once an estate exceeds the $4,000,000 exclusion amount. The Illinois estate tax is not a simple flat 16% on the amount above $4 million; the calculation produces an effective tax that varies by estate size, up to a top rate of 16%.
• Illinois exemption is not portable to a surviving spouse; transferable gifts during life are included in the estate for calculation.

 

Example:

Decedent’s gross estate valued at $5,000,000:
If all property is Illinois property, the Illinois estate tax example amount shown by the Illinois Attorney General is $285,714.
If part of the estate is outside Illinois, Illinois generally calculates a preliminary tax and then apportions it based on the ratio of Illinois property to total property.

 

 

A smaller example (100% in-state):

Estate worth $5,000,000 with all Illinois property, Illinois estate tax example amount: $285,714.

 

Retirement Income & Capital Gains: Pension-Friendly Illinois

• As noted under personal income tax, Illinois does not tax retirement income: All private/public pension payments, IRA/401(k)/457 distributions, Social Security benefits, and deferred comp distributions.
• Capital gains and interest/dividend income are taxed at the flat 4.95 % rate if not disability or qualified exempt income.
• Illinois fully exempts retirement income for state income tax purposes, including Social Security and most pension and qualified retirement plan distributions.

 

Example:

Retired couple living on $50k IRA distributions + $30k interest income:

IRA distributions: $50k → exempt

Interest income: $30k × 4.95 % = $1,485 state tax

 

Summary Table for Illinois Taxes

Here is a simple table to summarize the Illinois State taxes:

Tax Type	Applies To	Rate / Notes
Personal Income Tax	All taxable income (wages, rental, etc)	Flat 4.95 %; retirement income tax‑exempt
Sales & Use Tax	Consumer goods; rideshare, auto, etc	6.25 % state + up to ~4.75 % local = up to 11 %
Property Tax	Homeowners, real estate	Local rate; average 1.83 %–1.95 % of value
Corporate Income Tax (C‑Corp)	Illinois C‑corporations only	7 % BIT + 2.5 % replacement = ~9.5 % burden
Replacement Tax (S‑Corp/Partnership, Trusts)	S corporations, partnerships, and trusts	1.5% Personal Property Replacement Tax (PPRT) on net Illinois income at the entity level; the entity does not pay the 4.95% Illinois income tax, the income tax is paid at the owner level on the individual return.
Estate Tax	Estates exceeding the $4,000,000 exclusion	Calculated tax with rates up to 16%, not a flat 16% on the amount above $4M
Retirement Income	Pensions, IRAs, Social Security	0 % — fully exempt at the state level

 

 

 

Practical Tips for Managing Your Illinois Tax Burden

1. For retirees, focus spending on exempt retirement income first; minimize taxable interest/gains to reduce the effective tax burden.
2. Use the Illinois Homestead Exemption and assessment freeze to reduce property tax liabilities as early as eligible.
3. Remote sellers & marketplace facilitators must monitor the $100,000 tax remittance threshold for destination-based collection rules.
4. Corporate filers should consider pass‑through structures if replacing principal income at 9.5 % is less desirable.
5. Estate planning is important, as trusts, Illinois resident decedents, and out-of-state real estate all influence the Illinois estate tax. If the estate exceeds the threshold, Form 700 must be filed with the Illinois Attorney General.

 

Why Illinois Stands Out?

• Flat 4.95% income tax keeps reporting simple
• No tax on retirement income makes it income-friendly for retirees
• High property & sales tax rates can eat into the advantage for homeowners and consumers
• Corporations face a steep 9.5% combined rate, though pass-throughs save the higher rate
• Estate tax kicks in at just $4M, which is far lower than the federal threshold

By embedding key rates, worked examples, recapitulation by tax type, and limiting external links to essential official IDOR pages, this guide keeps the reader engaged and informed without needing to click away. Want worked examples specific to Chicago, taxable liability calculators, or breakdowns for business income apportionment? Just say the word.