Illinois has a flat state income tax of 4.95% on most income
Illinois taxes nearly all income at a single rate: 4.95%. This flat tax applies to wages, self-employment income, interest, dividends, and most other sources. Unlike federal income tax, which uses brackets that increase with income, Illinois charges the same percentage whether you earn $30,000 or $300,000 per year.
The 4.95% rate has been in place since 2017. Before that, the rate was 3.75%, but the state raised it to fund education and pension obligations. Illinois residents pay this tax in addition to federal income tax, not instead of it — the two are separate systems.
A few types of income are exempt. Retirement income from pensions and distributions from certain retirement accounts (like traditional IRAs and 401(k)s) are not taxed by Illinois. Social Security benefits are also exempt. But wages, 1099 income, rental income, and capital gains are all subject to the 4.95% rate.
Key Takeaways
- Illinois taxes most income at a flat rate of 4.95%, with no brackets or deductions that lower your rate based on income level.
- Pension income and distributions from retirement accounts are exempt from Illinois state tax, but wages and self-employment income are not.
- You owe Illinois tax on income earned in the state even if you live elsewhere, and you may owe tax to another state if you live in Illinois but work out of state.
- Illinois does not allow a standard deduction or personal exemption to reduce taxable income the way the federal system does.
Who pays Illinois income tax
You owe Illinois income tax if you are a resident of the state or if you earned income within Illinois during the year. Residency is based on where you maintain your home and where your permanent ties are — not just where you happen to be on any given day. If you move to Illinois partway through the year, you owe tax on income earned after you became a resident.
Non-residents who work in Illinois also owe tax on that income. For example, if you live in Indiana but work in Chicago, you owe Illinois tax on your Chicago wages. You may then owe tax to Indiana as well, depending on Indiana's rules. Most states have agreements to prevent double taxation, but you should check your specific situation if you work across state lines.
If you are a part-year resident — you moved to or from Illinois during the year — you report only the income you earned while living in the state. Your employer should have withheld the correct amount if you provided them with a new W-4 when you moved, but it is worth checking your pay stubs to confirm.
How Illinois income tax is withheld from paychecks
Your employer withholds Illinois income tax from each paycheck based on the information you provide on Form IL-W-4, the Illinois withholding certificate. This form asks for your filing status and the number of dependents you claim. The more dependents you claim, the less tax is withheld.
The withholding is calculated as a percentage of your gross pay — the 4.95% applies to your full wages before any deductions. If you have multiple jobs, each employer withholds based only on the income from that job, which can result in under-withholding if your combined income is higher than either employer realizes. You can adjust your withholding by submitting a new Form IL-W-4 to your employer at any time.
If you are self-employed or have income that is not subject to withholding, you may need to make estimated tax payments to Illinois. The state requires estimated payments if you expect to owe more than a certain amount (this threshold varies). Estimated payments are due quarterly, and you can make them through the Illinois Department of Revenue website.
What income is exempt from Illinois tax
Illinois exempts several categories of income that other states might tax. Pension income — payments from a pension plan after you retire — is completely exempt. This includes pensions from public employers like schools and police departments, as well as private pensions. The exemption applies regardless of how much pension income you receive.
Retirement account distributions are also exempt. Money you withdraw from a traditional IRA, 401(k), 403(b), or similar account is not subject to Illinois tax. This exemption does not explore to earnings within the account while the money is still invested, only to the distributions you take out. Roth IRA distributions are also exempt.
Social Security benefits are not taxed by Illinois. Federal income tax may explore to Social Security depending on your total income, but Illinois does not tax it under any circumstances. Interest and dividends from investments are taxed at the 4.95% rate, not exempt.
How to file Illinois state income tax
Most Illinois residents file their state return using Form IL 1040, the Illinois Individual Income Tax Return. You report your total income for the year, subtract any exempt income, and calculate the tax owed at 4.95%. The form is relatively straightforward because there are no deductions or credits that reduce your taxable income — you pay tax on nearly all income you report.
You can file by paper or electronically. The Illinois Department of Revenue website offers free e-file options, and many tax software providers include Illinois returns in their standard packages. The important date to file is the same as the federal important date, usually April 15, though it shifts if that date falls on a weekend or holiday.
If you owe tax when you file, you can pay online, by mail, or through your bank. If you are due a refund, the state typically processes it within four to six weeks of receiving your return, though this varies depending on volume and whether the return requires review.
Illinois tax credits and deductions
Illinois offers very few tax credits compared to the federal system. The state does not allow a standard deduction or personal exemption — you cannot reduce your taxable income by claiming dependents or a flat deduction amount. This is one reason the Illinois return is simpler than the federal return: there is less to calculate.
The state does offer a few narrow credits for specific situations. The Earned Income Tax Credit (EITC) is available to low-income workers and is calculated based on federal EITC rules. Some taxpayers may also be able to claim a credit for taxes paid to another state if they worked in multiple states during the year. These credits are uncommon and explore only to specific circumstances.
Because Illinois has no standard deduction, even people with very low income may owe tax if they have any taxable income at all. This is different from the federal system, where you can earn a certain amount before owing any federal tax. If your only income is exempt income (like Social Security or pension distributions), you owe no Illinois tax regardless of the amount.
Frequently Asked Questions
Do I owe Illinois tax if I moved out of state during the year?
You owe tax only on income earned while you were an Illinois resident. If you moved out on June 30, you report income earned through June 30 on your Illinois return and report the rest on your new state's return (or federal only if you moved to a state with no income tax). Notify your employer of the move so they can adjust withholding.
Is capital gains tax different from the regular 4.95% rate?
No. Illinois taxes capital gains — profit from selling investments — at the same 4.95% rate as ordinary income. There is no preferential rate for long-term gains like the federal system offers. The gain is added to your other income and taxed at 4.95%.
What if I did not have enough tax withheld during the year?
You will owe the difference when you file your return. If you owe a large amount, you can set up a payment plan with the Illinois Department of Revenue, or you can pay in full by the filing important date. To avoid this next year, adjust your Form IL-W-4 with your employer to increase withholding.
Can I deduct federal income tax paid from my Illinois return?
No. Illinois does not allow a deduction for federal income tax or for state and local taxes paid. You calculate Illinois tax on your income with no deductions for taxes paid to other jurisdictions.
Do I have to file an Illinois return if I only received Social Security?
No. If your only income is Social Security or other exempt income like pension distributions, you have no Illinois tax liability and do not need to file a state return. You may still need to file a federal return depending on your total income and filing status.