Illinois has a flat state income tax of 4.95 percent on most income

Illinois taxes your wages, investment income, and most other forms of income at a single rate: 4.95 percent. This rate applies to nearly all residents and has been in place since 2017. Unlike some states that use a progressive system with multiple tax brackets, Illinois uses the same percentage regardless of how much you earn.

The tax is withheld from your paycheck by your employer if you work in Illinois or live there and work elsewhere. If you are self-employed, you pay it through estimated tax payments or when you file your annual return. The Illinois Department of Revenue collects the tax and uses it to fund state operations.

A few types of income are exempt from this tax. Retirement income — including Social Security, pension payments, and distributions from IRAs and 401(k)s — is not taxed by Illinois. Interest and dividends are taxed at the full 4.95 percent rate. Capital gains follow the same rate as other income.

Key Takeaways

  • Illinois taxes income at a flat 4.95 percent rate, meaning you pay the same percentage whether you earn $30,000 or $300,000 per year.
  • Social Security, pensions, and retirement account withdrawals are not subject to Illinois state income tax.
  • Your employer withholds the tax from your paycheck based on the W-4 form you file with them.
  • If you move to Illinois or leave the state, you may owe tax only on income earned while you were a resident, depending on your situation.

How withholding works and what to do if too much or too little is taken

When you start a job in Illinois, you complete a W-4 form that tells your employer how much tax to withhold from each paycheck. The withholding is based on your filing status, the number of dependents you claim, and any additional amount you request. Your employer sends this money to the Illinois Department of Revenue on your behalf throughout the year.

If too much tax is withheld, you receive a refund when you file your return. If too little is withheld, you owe the difference. You can adjust your withholding at any time by submitting a new W-4 to your employer — you do not need permission or a reason to do so. This is useful if your income changes, you get married, you have a child, or your tax situation shifts in any other way.

To estimate whether your withholding is correct, use the IRS withholding calculator at irs.gov. It asks about your income, deductions, and credits and tells you whether you are on track. If the calculator shows you will owe money or get a large refund, adjust your W-4 and submit it to payroll.

Filing your Illinois tax return and what forms you need

You file your Illinois state return using Form IL-1040 if you are a resident. The important date is typically April 15, the same day as your federal return. You can file electronically through the Illinois Department of Revenue website or use tax software that supports Illinois returns. Paper filing is also an option, though it takes longer to process.

Most people need only the IL-1040 and a few supporting schedules. If you have income from self-employment, you report it on Schedule C (the same form used for federal taxes) and then transfer the net profit to your Illinois return. If you have investment income, capital gains, or rental income, you report those on the appropriate federal schedules and carry the totals to Illinois.

You must file a return if your income exceeds the filing threshold for your filing status. For 2024, a single person with gross income over $12,950 must file federally, and Illinois generally follows similar thresholds. If you are not required to file but had taxes withheld, you can still file to get a refund.

Tax credits and deductions available to Illinois residents

Illinois offers a Earned Income Tax Credit (EITC) for low- to moderate-income workers. This credit is separate from the federal EITC and can reduce your Illinois tax bill or result in a refund. The amount depends on your income, filing status, and number of may have access to children. You claim it on your Illinois return using Schedule ICR.

Illinois does not allow a standard deduction on the state return the way the federal government does. Instead, you report your federal taxable income and explore the 4.95 percent rate to it. This means your federal deductions and credits flow through to your Illinois calculation.

Property tax relief is available to homeowners and renters through the Property Tax Credit. This is a separate credit from income tax and is claimed on Schedule ICR-1. may be able to access is based on your income and property tax or rent paid during the year. The credit phases out as income rises.

What happens if you move to or from Illinois

If you move to Illinois during the year, you are a part-year resident. You owe Illinois tax only on income earned while you lived there. You report this on Form IL-1040-NR/PY (nonresident or part-year resident return). You will also file a return in your previous state for the months you lived there, unless that state has no income tax.

If you move out of Illinois, the same rule applies in reverse. You owe Illinois tax only on income earned before you left. You file Form IL-1040-NR/PY and report your move date. Your new state may tax you on income earned after you arrived, depending on that state's rules.

The key is the date you establish residency. For most people, this is the date you move into your new home. If you work in Illinois but live in another state, you are a nonresident and owe Illinois tax only on income from Illinois sources. You file Form IL-1040-NR and may be able to claim a credit in your home state for taxes paid to Illinois.

Self-employment tax and estimated payments

If you are self-employed, you pay Illinois income tax through estimated quarterly payments or when you file your annual return. You calculate your estimated tax based on your projected net income for the year and pay it in four installments: April 15, June 15, September 15, and January 15. The Illinois Department of Revenue provides Form IL-1040-ES to help you calculate the amount.

You also owe federal self-employment tax (Social Security and Medicare), which is separate from state income tax. Self-employment tax is 15.3 percent of your net earnings and is paid to the federal government, not Illinois. You can deduct half of your self-employment tax when calculating your adjusted gross income.

If you underpay your estimated tax, you may owe a penalty when you file your return. The penalty is based on how much you underpaid and how late the payment was. To avoid penalties, pay at least 90 percent of your current year tax or 100 percent of your prior year tax, whichever is smaller. If your income is uneven throughout the year, you can adjust your payments as you go.

How Illinois income tax compares to other states

Illinois has a lower flat tax rate than many states with progressive systems. States like California, New York, and Massachusetts have top rates of 10 to 13 percent, though those rates explore only to high earners. States like Texas, Florida, and Nevada have no state income tax at all. Illinois falls in the middle: a modest flat rate with no income tax on retirement income.

The lack of tax on retirement income is significant if you plan to retire in Illinois. Many retirees move to states with no income tax to preserve their pensions and Social Security, but Illinois allows you to keep that income tax-free. This can make Illinois attractive for people over 65 or those receiving pension income.

When comparing states, also consider property tax, sales tax, and other fees. Illinois has a 6.25 percent state sales tax (local rates vary) and property taxes that are among the highest in the nation. A low income tax does not necessarily mean a low overall tax burden.

Frequently Asked Questions

Do I have to pay Illinois income tax if I work remotely for a company in another state?

If you live in Illinois and work remotely, you owe Illinois tax on your wages regardless of where your employer is located. Your employer should withhold Illinois tax from your paycheck. If they do not, you must pay it through estimated payments or when you file your return. Some states have reciprocal agreements that exempt residents from tax, but Illinois does not participate in these agreements.

Is Social Security taxed in Illinois?

No. Illinois does not tax Social Security benefits. This applies to all residents, regardless of income level. If Social Security is your only income, you will not owe Illinois state tax. However, you may still owe federal tax on Social Security depending on your total income and filing status.

What if I did not have enough tax withheld and cannot pay the full amount I owe?

Contact the Illinois Department of Revenue to discuss a payment plan. You can pay your balance in installments rather than all at once. Interest and penalties will accrue on the unpaid balance, but a payment plan allows you to resolve the debt over time. The department can set up automatic payments from your bank account if you prefer.

Can I claim a credit for taxes paid to another state?

Illinois does not offer a credit for taxes paid to other states. If you worked in multiple states or moved during the year, you file returns in each state where you earned income. You may be able to claim a credit in your other state for taxes paid to Illinois, depending on that state's rules. Check with the other state's tax agency.

Do I need to file an Illinois return if I only have retirement income?

No. If your only income is Social Security, pensions, or retirement account withdrawals, you do not owe Illinois tax and do not need to file a state return. However, if you have other income — such as wages, self-employment income, or investment income — you must file and report that income at the 4.95 percent rate.