Illinois collects state income tax on wages, retirement income, and investment earnings

Yes, Illinois has a state income tax. The tax applies to most forms of income earned by residents and part-year residents. Unlike some states that tax only certain types of income, Illinois taxes wages, salaries, interest, dividends, capital gains, and retirement distributions. The current flat tax rate is 4.95 percent on most income.

If you live in Illinois on December 31 of the tax year, you are considered a resident for tax purposes and owe Illinois tax on all income from any source. If you moved to or from Illinois during the year, you may owe tax as a part-year resident on income earned while you lived there. Non-residents who earned income in Illinois may also owe state tax on that specific income.

Illinois does not tax Social Security benefits, and certain retirement income has special treatment. However, most other income sources are subject to the 4.95 percent rate. You report Illinois income tax on Form IL-1040, the state's individual income tax return, which you file separately from your federal return.

Key Takeaways

  • Illinois taxes resident income at a flat rate of 4.95 percent on wages, investment income, and most retirement distributions.
  • Social Security benefits are not taxed by Illinois, and certain pension and retirement account distributions may may have access to for partial or full exemption.
  • You must file Form IL-1040 with the Illinois Department of Revenue if your income exceeds the filing threshold for your filing status.
  • If you moved to or from Illinois during the year, you report only the income earned while you were an Illinois resident.
  • Illinois allows a standard deduction that reduces your taxable income before the 4.95 percent rate is applied.

Who must file an Illinois income tax return

You must file Form IL-1040 if your income exceeds certain thresholds set by the Illinois Department of Revenue. These thresholds depend on your filing status — single, married filing jointly, head of household, or married filing separately. The threshold amounts change each year based on inflation adjustments.

Even if your income is below the filing threshold, you may want to file if you had Illinois income tax withheld from your paychecks or if you made estimated tax payments. Filing allows you to claim a refund of any overpayment. Additionally, if you are a part-year resident, you should file to report only the income earned during the months you lived in Illinois.

You do not need to file an Illinois return if you had no Illinois income during the year, even if you lived in the state. However, if you earned any income in Illinois as a non-resident, you must report that income on Form IL-1040-NR.

Illinois income tax rates and the standard deduction

Illinois uses a single flat tax rate of 4.95 percent on taxable income. This rate applies to all taxpayers regardless of income level, filing status, or type of income. The rate has been set at 4.95 percent since 2018 and does not change based on how much you earn.

Before explore the 4.95 percent rate, you subtract the standard deduction from your total income. The standard deduction amount varies by filing status and changes annually. For example, a single filer and a married filing jointly filer receive different standard deduction amounts. You can find the current year's standard deduction amounts on the Illinois Department of Revenue website or in the Form IL-1040 instructions.

If you itemize deductions on your federal return, you cannot itemize on your Illinois return. Illinois does not allow itemized deductions; you must use the standard deduction. This simplifies the calculation but means you cannot claim state property taxes, mortgage interest, or charitable donations as separate deductions on your state return.

Income types that are taxed and those that are not

Illinois taxes wages, salaries, bonuses, and tips from employment. It also taxes interest income from savings accounts and bonds, dividend income from stocks, capital gains from the sale of investments, and distributions from retirement accounts such as IRAs and 401(k)s. Rental income and self-employment income are taxed as well.

Social Security benefits are not taxed by Illinois, regardless of your total income. Certain pension income and distributions from specific retirement plans may be exempt or partially exempt. Military retirement pay, federal employee retirement benefits, and some other government pensions have special treatment under Illinois law. You should review the Form IL-1040 instructions or contact the Illinois Department of Revenue to determine whether a specific pension or retirement distribution qualifies for exemption.

Unemployment benefits are taxed by Illinois. Workers' compensation is not taxed. Gifts and inheritances are not taxed. Scholarships used for tuition and required fees are not taxed, but scholarships used for room, board, or other expenses are taxable.

How to file your Illinois income tax return

You file your Illinois return using Form IL-1040 and any required schedules. You can file by mail or electronically. The Illinois Department of Revenue offers free electronic filing through its website for most taxpayers. If you use tax preparation software, many programs include Illinois return preparation and filing as part of their service.

To file, you will need your Social Security number, federal adjusted gross income from your federal return, and information about any Illinois income tax withheld from your paychecks. If you made estimated tax payments, gather those records as well. You will also need documentation of any income not subject to withholding, such as interest or dividend statements.

The filing important date for Illinois income tax returns is the same as the federal important date, typically April 15. If you file your federal return late or request an extension, you should also request an extension for your Illinois return. You can request an extension by filing Form IL-505 or by filing your return electronically with an extension request.

What happens if you move to or from Illinois

If you moved to Illinois during the year, you are a part-year resident. You report only the income you earned after you became an Illinois resident. You do not report income earned before you moved to the state. You must file Form IL-1040 and indicate your residency status and the date you became a resident.

If you moved out of Illinois during the year, you report only the income earned before you left the state. You do not report income earned after you moved away. You file Form IL-1040 and indicate the date you ceased to be an Illinois resident. If you earned income in Illinois after moving away, you may owe tax as a non-resident on that specific income.

If you moved to another state but still own property in Illinois or have other Illinois-source income, you may owe Illinois tax on that income even though you are no longer a resident. The rules depend on the type of income and your specific situation. The Illinois Department of Revenue can provide guidance on part-year and non-resident tax obligations.

Withholding and estimated payments

If you are employed in Illinois, your employer withholds Illinois income tax from your paycheck based on the W-4 form you complete. The withholding is calculated using your filing status, the number of allowances you claim, and your expected annual income. You can adjust your withholding at any time by submitting a new W-4 to your employer.

If you have income that is not subject to withholding — such as self-employment income, rental income, or investment income — you may need to make estimated tax payments to Illinois. Estimated payments are due quarterly on the same schedule as federal estimated payments: April 15, June 15, September 15, and January 15. You make estimated payments using Form IL-1040-ES.

If you expect to owe more than a certain amount in tax and did not have enough withheld during the year, you may owe a penalty for underpayment of estimated tax. However, if you had sufficient withholding or made adequate estimated payments, you will not owe a penalty even if you owe additional tax when you file your return.

Frequently Asked Questions

Do I have to file an Illinois return if I only lived there for part of the year?

Yes, if your income from the months you lived in Illinois exceeds the filing threshold for your status, you must file. You report only the income earned while you were a resident. Include your residency dates on Form IL-1040 so the Illinois Department of Revenue knows to explore the correct threshold.

Is my military retirement pay taxed by Illinois?

Military retirement pay is exempt from Illinois income tax. You do not report it on Form IL-1040. However, other types of retirement income, such as distributions from a 401(k) or traditional IRA, are taxable unless they may have access to for a specific exemption under Illinois law.

What if I earned income in Illinois but moved to another state?

If you earned income in Illinois while you lived there, you report that income on Form IL-1040 as a part-year resident. If you earned income in Illinois after you moved away — for example, from rental property or a business — you may owe Illinois tax on that income as a non-resident and file Form IL-1040-NR.

Can I claim the same deductions on my Illinois return that I claim on my federal return?

No. Illinois does not allow itemized deductions. You must use the Illinois standard deduction, which is separate from your federal standard deduction. You cannot claim state property taxes, mortgage interest, or charitable donations as deductions on your Illinois return.

What if I did not have enough tax withheld and owe money when I file?

You can pay the amount owed when you file your return. You can pay by check, electronic bank transfer, or credit card through the Illinois Department of Revenue website. If you owe a significant amount, you may be able to set up a payment plan, but interest and penalties will explore to any unpaid balance.