Illinois State Taxes

If you live in Illinois (or at least earn part of your income there) you’ll probably deal with state taxes at some point. While not an in-depth guide, this article gives you a solid overview of how Illinois state taxes work, including income tax, sales tax, and a few other essentials.

It’s not meant to cover every single situation or obscure exception out there, but it should help you understand the basics and point you in the right direction. Whether you’re a full-time resident of the Land of Lincoln or just passing through for work, this guide is here to make things a little clearer.

Illinois Personal Income Tax

Illinois’ personal income tax has a flat rate of 3% of a taxpayer’s net income. It applies to resident taxpayers who have Illinois-based income and have filed a federal income tax return. It also applies to resident taxpayers who have Illinois-based income that is greater than the Illinois exemption allowance, even if a federal return has not been filed.

Illinois residents who have worked in Iowa, Kentucky, Michigan, or Wisconsin must also file an Illinois state tax return and include any income earned from these states.

While certain types of retirement income are not taxed in Illinois, a retired taxpayer who has filed a federal return must also file an Illinois return.

When filing your Illinois state tax return, you must use the same filing status as your federal return. The filing statuses include: single, head of household, married filing jointly, married filing separately, and widowed.

The due date for filing an Illinois state income tax return is April 15th. Taxpayers are granted an automatic 6-month extension by using Form IL-505-I (Automatic Extension Payment for Individuals). However, this is an extension of time to file, not an extension for payment. To avoid late fees, any tax owed must still be paid by the original due date of April 15th.

Illinois Corporate Tax

Illinois’ corporate tax is composed of a flat 4.8% income tax, plus a 2.5% replacement tax (a.k.a. the Personal Property Replacement Tax) on net income. Corporate tax is imposed on all corporations with Illinois-sourced income, and it is filed using Form IL-1120 (Illinois Corporation Income and Replacement Tax Return).

Corporate income returns are due by the 15th day of the 3rd month following the end of the tax year. Automatic extensions may be granted for late filing, but not late payments. Form IL-505-B (Automatic Extension Payment) must be filed with the expected tax payment in order to avoid penalties.

To correct or amend a corporate tax return that has already been filed, use Form IL-1120-X (Amended Corporation Income and Replacement Tax Return).

Illinois Sales & Use Tax

The Illinois sales and use tax applies to merchandise used and/or consumed in Illinois.

The sales tax is charged to the customer/consumer and is collected by a retailer or service person. There are two rates for the Illinois state sales tax:

• 6.25% for general merchandise and vehicles
• 1% for certain food, drugs, and medical appliances

The ‘Home Rule sales tax’ is administered by the Illinois Department of Revenue and enforced by home rule units (i.e. municipalities and counties). These rates range from 0.25% to 1.75% and are added onto the state sales tax rate (6.25%).

The ‘use tax’ is charged when the appropriate sales tax was not collected, and it is paid directly to the Illinois Department of Revenue by the person who uses the merchandise. For example, if you purchase an item from out-of-state for use in Illinois and you pay less than the above sales tax rate, you must pay difference to Illinois.

The use tax is designed to evenly distribute the tax burden and to ensure fair competition for out-of-state businesses. It has the same rate of 6.25%. Illinois Use Tax can be filed with Form ST-44 (Illinois Use Tax Return).

Illinois Property Tax

Property tax in Illinois is a local (not state) tax imposed only on real property, such as houses, land, and commercial building, and based on a property’s value. It is a major source of revenue for local governments and it is the single largest tax in the state.

In general, everybody pays property tax: homeowners, commercial property owners, renters (indirectly to landlords), and leaseholders. Property taxes are regulated by about 6,900 local taxing districts (including counties, townships, municipalities, and school districts). Revenue collected from property tax goes to public schools, roads, libraries, and police and fire departments.

Illinois has a 2-year, 6-step property tax cycle:

1. Assessment: Properties are appraised and values are assessed.
2. Review of Assessments: County boards determine the correctness and fairness of the assessed values, and property owners may appeal assessments if they are unsatisfied.
3. State Equalization: The Illinois Department of Revenue issues a state equalization factor based on county assessments.
4. Levy: Taxing districts determine the amount of revenue that needs to be raised by property taxes.
5. Extension: County clerks consider Step 3 (state equalization) and Step 4 (revenue needed to be raised) to compute tax bills and prepare the books for county collectors.
6. Collection & Distribution: County collectors send out tax bills and collect tax payments, and then they distribute the funds to local governments.

A property may be subject to several different taxing districts, depending on its location. County clerks are responsible for determining the combination of taxing units and coming up with an aggregate rate for each tax code area. The aggregate rate (which will appear on the tax bill) is the combination of rates from the county, township, school district, city, and any other special districts.

Illinois State Tax Forms

Whether you’re filing as an individual, making estimated payments, or handling taxes for a business, these forms help you stay in good standing with the Illinois Department of Revenue.

Form IL-1040: Illinois Individual Income Tax Return
This is the main tax form for individual taxpayers in Illinois. If you’re a full-year resident, this is the form you’ll use to report your income, claim deductions and credits, and figure out whether you owe anything or are due a refund. Illinois has a flat income tax rate, so this form is pretty straightforward compared to some other states, but it’s still important to double-check your entries before filing.

Schedule NR: Nonresident and Part-Year Resident Computation of Illinois Tax
If you didn’t live in Illinois for the entire year or you earned money in the state while living elsewhere, you’ll likely need to fill out this form. Schedule NR works alongside the IL-1040 and helps calculate how much of your income is actually taxable in Illinois. It’s the key to making sure you’re only paying tax on what the state is entitled to.

Form IL-1040-ES: Estimated Income Tax Payments for Individuals
If you expect to owe at least $1,000 in taxes when you file your return—and you’re not having enough withheld from your paycheck—you may need to make quarterly estimated tax payments. That’s where Form IL-1040-ES comes in. It’s used to send those payments throughout the year and avoid underpayment penalties when tax season rolls around.

Form IL-505-I: Automatic Extension Payment for Individuals
Need a little extra time to file your IL-1040? This form lets you request an automatic six-month extension. It’s important to know that this is just an extension to file, not to pay. So if you owe money, you’ll still need to estimate that amount and send in a payment by the original deadline using this form.

Form IL-1120: Corporation Income and Replacement Tax Return
This form is for C corporations doing business in Illinois. It reports corporate income and calculates both the state income tax and something called the Personal Property Replacement Tax—a tax that corporations pay instead of the old local personal property taxes. If you run a corporation, this is the form you’ll be dealing with come tax time.

Form ST-44: Illinois Use Tax Return
Bought something online or out of state without paying sales tax? The state still wants its cut, and that’s where Form ST-44 comes into play. Use tax is basically a way for Illinois to collect sales tax on purchases made without it. This form helps individuals report those purchases and pay the tax they owe. You can also report use tax directly on your IL-1040 if the total is small.

Illinois State Tax Resources

• Illinois Department of Revenue: tax.illinois.gov
• Find out if you are eligible to file state income taxes online using ‘IL-1040 Web File:’ www.revenue.state.il.us/app/ifile/Eligibility
• To file your Illinois personal income tax return for free using ‘IL-1040 Web File,’ go to the following website: www.revenue.state.il.us/app/ifile
• Current year Illinois personal income tax forms: https://tax.illinois.gov/
• Income Tax Refund Status Inquiry: www.revenue.state.il.us/app/refund/servlet/RefundStatus
• Use the ‘Illinois Tax Rate Finder’ to look up specific sales tax rates by location: www.revenue.state.il.us/app/trii
• Publication 108-Illinois Property Tax Credit: tax.illinois.gov/Publications/Pubs/Pub-108
• Illinois Tax Freedom Day is April 13th.

Illinois State Taxes: FAQ

1. Do I have to file an Illinois state income tax return if I don’t live there full time?
If you earned income from Illinois sources—whether you worked there, owned rental property, or ran a business in the state—you’ll likely need to file as a part-year resident or nonresident. Illinois uses Schedule NR to figure out how much of your income is actually taxable in the state. So even if you weren’t living there the whole year, you still might owe something.

2. What kinds of income does Illinois tax?
Illinois taxes most kinds of income you’d also report on your federal return, like wages, tips, self-employment income, and interest or dividends. But the state is a bit more generous than some others because it doesn’t tax Social Security benefits, military retirement pay, or distributions from most retirement plans. You’ll still need to report all income, but not all of it will be taxed.

3. How does Illinois treat tax credits and deductions?
Illinois doesn’t offer a ton of deductions the way the federal government does. Instead, it gives you a standard exemption amount for yourself and each of your dependents. However, there are some tax credits available, like the Earned Income Tax Credit (EITC), which is a percentage of the federal version. There’s also a property tax credit and a K-12 education expense credit if you qualify.

4. What happens if I don’t pay my Illinois taxes on time?
If you miss the deadline to pay what you owe, Illinois will charge interest starting from the due date of your return. There might also be penalties for late payment or late filing. The longer you wait, the more expensive it gets. If you’re having trouble paying in full, you might be able to set up a payment plan through MyTax Illinois.

5. Can I get help filing my Illinois taxes for free?
Yes, there are a few ways to file your Illinois state tax return for free. MyTax Illinois lets most taxpayers file online at no cost. If your income is below a certain level, you might also qualify for free assistance through programs like the IRS’s Volunteer Income Tax Assistance (VITA) or AARP’s Tax-Aide. These programs are available in many communities and can help with both state and federal returns.

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