Yes, Illinois has a state income tax, and it applies to most residents and workers

Illinois taxes income at a flat rate of 4.95% on wages, salaries, interest, dividends, and most other income sources. This rate applies to all residents regardless of income level — there are no tax brackets. If you live in Illinois or work there and earn money, you will owe state income tax unless a specific exemption applies to you.

The 4.95% rate has been in place since 2017. Before that, Illinois used a lower rate of 3.75%, but voters approved a constitutional amendment allowing the state to move to a progressive tax system, which the legislature implemented as a flat increase instead. Unlike federal income tax, Illinois does not adjust its rate based on your filing status or number of dependents.

Key Takeaways

  • Illinois taxes all income at a flat 4.95% rate, with no variation based on how much you earn or your filing status.
  • You owe Illinois state income tax if you are a resident or if you work in Illinois, even if you live in another state.
  • Certain types of income are exempt from Illinois tax, including Social Security benefits, retirement account distributions in some cases, and income from municipal bonds.
  • If you move out of Illinois mid-year, you only owe tax on income earned while you were a resident.
  • Illinois allows you to claim a credit for taxes paid to other states if you work in Illinois but live elsewhere.

What income is taxed and what is exempt

Illinois taxes wages, salaries, self-employment income, interest, dividends, capital gains, rental income, and retirement account withdrawals. The 4.95% rate applies to nearly all of these sources without exception based on the type of income.

Social Security benefits are fully exempt from Illinois state income tax. Distributions from traditional IRAs and 401(k) plans are taxable, but distributions from Roth IRAs are not taxable (since you already paid tax on the money going in). Interest and dividends from municipal bonds issued by Illinois municipalities are exempt, but municipal bonds from other states are taxable in Illinois.

Military pay for active-duty service members is exempt from Illinois state income tax. Certain pension income may also may have access to for exemptions or deferrals depending on when you retired and what type of pension you receive, so you should review your specific situation if you are drawing a pension.

How to file and when payments are due

Illinois uses Form IL-1040 for residents and Form IL-1040-NR for non-residents who earned Illinois income. You file with the Illinois Department of Revenue, not with your city or county. The important date is the same as the federal important date — typically April 15 of the year following the tax year, though it shifts if April 15 falls on a weekend or holiday.

If you are an employee, your employer withholds Illinois state income tax from your paycheck automatically. The withholding is based on a form you complete when you are hired (similar to the federal W-4). If you are self-employed, you may need to make quarterly estimated tax payments to avoid penalties, though the threshold for this requirement is higher than the federal threshold.

You can file electronically through the Illinois Department of Revenue website or through a tax software provider. Paper filing is also available. If you expect a refund, electronic filing typically results in a faster refund than paper filing.

Non-residents who work in Illinois

If you live in another state but work in Illinois, you owe Illinois state income tax on the income you earn in Illinois. You will file Form IL-1040-NR with Illinois and also file a return in your home state. Most states allow you to claim a credit for taxes paid to Illinois to avoid double taxation, though the credit is usually limited to the amount of tax your home state would have charged.

Your Illinois employer will withhold Illinois state income tax from your paycheck if you provide them with a non-resident withholding certificate. Without this certificate, they may withhold at a higher rate. You can obtain the certificate from the Illinois Department of Revenue website.

The credit you claim in your home state depends on that state's rules. Some states offer a full credit for taxes paid to Illinois; others offer a partial credit or no credit at all. Check your home state's tax rules or speak with a tax professional to understand how the credit works in your situation.

Moving to or from Illinois mid-year

If you move to Illinois during the year, you only owe Illinois state income tax on income earned after you became a resident. You will file a part-year resident return (Form IL-1040) and report only the income earned while you lived in Illinois. Your previous state of residence will tax income earned before you moved.

If you move out of Illinois during the year, you only owe Illinois tax on income earned while you were a resident. You file a part-year resident return and report only income earned before your move date. You will also file a return in your new state for income earned after you moved.

The key is the date you establish residency or leave the state. For most people, this is the date you move your household. If your move is for work and you maintain a home in Illinois, the rules can be more complex — you may still be considered an Illinois resident for tax purposes. A tax professional can help you determine your residency status if your situation is unclear.

Local taxes on top of state income tax

Some Illinois cities and counties impose additional local income taxes on top of the state rate. Chicago, for example, has a city income tax of 3.5% on residents and 2.5% on non-residents who work in the city. Other municipalities have their own local rates, which vary widely.

Local income tax is separate from state income tax and is collected by the municipality, not the state. Your employer will withhold it from your paycheck if you work in a municipality that has a local income tax. You report it on a separate local return, not on your state return.

If you live in one municipality but work in another, you typically owe local tax to the municipality where you work, not where you live. Some municipalities offer credits if you pay tax to another municipality, but the rules vary. Check with your employer's payroll department or the municipality's tax office to understand what local taxes explore to you.

Deductions and credits available in Illinois

Illinois does not allow itemized deductions or a standard deduction on the state level. Because the state uses a flat tax rate, there is no tax benefit to itemizing versus taking a standard deduction — everyone pays 4.95% on taxable income. This is different from federal tax, where you choose between itemizing and taking the standard deduction.

Illinois does offer certain credits that reduce your tax liability. The Earned Income Tax Credit (EITC) is available to low-income workers and is calculated based on your federal EITC. The state also offers credits for property taxes paid, for taxes paid to other states, and for certain education expenses. These credits are claimed on your state return.

Because Illinois has a flat tax with no deductions, your tax planning options are more limited than at the federal level. Most tax planning in Illinois focuses on the type and timing of income (for example, deferring income to a later year or using retirement accounts to reduce taxable income), rather than on deductions.

Frequently Asked Questions

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

Yes, if you earned income while living in Illinois, you must file a part-year resident return reporting only the income earned during the months you lived there. Your previous state will tax income earned before you moved to Illinois, and your new state will tax income earned after you left.

What happens if my employer doesn't withhold Illinois state income tax?

You will owe the tax when you file your return. If the amount owed is large, you may face penalties and interest. You can adjust your withholding by providing your employer with a new withholding certificate, or you can make quarterly estimated tax payments to the Illinois Department of Revenue to avoid penalties.

Can I deduct my mortgage interest or property taxes on my Illinois return?

No. Illinois does not allow itemized deductions for mortgage interest or property taxes. The state taxes income at a flat 4.95% rate with no deductions. You can claim a property tax credit if you meet income limits, but this is different from a deduction.

Do I owe Illinois tax on income from a job in another state?

No. You only owe Illinois state income tax on income earned in Illinois or if you are an Illinois resident receiving income from any source. If you work in another state and do not live in Illinois, you do not owe Illinois tax on that income.

Is retirement income taxed differently in Illinois?

Social Security is fully exempt. Traditional IRA and 401(k) withdrawals are taxed at the 4.95% rate. Roth IRA withdrawals are not taxed. Military pensions have special exemptions. Other pension income rules depend on when you retired and the type of pension, so review your specific situation or consult a tax professional.