Illinois has a state income tax that applies to most residents and workers

Yes, Illinois has a state income tax. The current rate is a flat 4.95% on all taxable income, meaning everyone pays the same percentage regardless of how much they earn. This is different from the federal income tax, which uses tax brackets where higher earners pay higher rates.

If you live in Illinois or earn income there, you will owe state income tax on wages, self-employment income, interest, dividends, and other sources. Illinois taxes both residents on all their income and nonresidents only on income earned within the state.

You report Illinois income tax on Form IL-1040, the state's individual income tax return. This form goes to the Illinois Department of Revenue, separate from your federal return to the IRS.

Key Takeaways

  • Illinois charges a flat 4.95% state income tax on all taxable income, with no variation based on income level.
  • You must file an Illinois return if you earned income in the state or lived there for part of the year, even if you owe no tax.
  • Certain types of income, including Social Security benefits and some retirement distributions, are exempt from Illinois state tax.
  • Illinois allows you to claim a standard deduction or itemize deductions, similar to federal filing, which reduces your taxable income.

Who must file an Illinois state return

You must file Form IL-1040 if you lived in Illinois at any point during the tax year and had income above the filing threshold. For 2024, the threshold is $2,575 for single filers and $5,150 for married couples filing jointly. These thresholds change each year based on inflation.

You also must file if you had Illinois income tax withheld from your paychecks, even if your total income falls below the threshold. This is because you may be due a refund of the tax already paid.

Nonresidents who earned income only in Illinois may have different filing requirements. If you worked in Illinois but lived elsewhere, you typically file Form IL-1040-NR instead of the standard return. Your employer's payroll department can tell you which form applies to your situation.

Income that Illinois does and does not tax

Illinois taxes most types of income the same way the federal government does: wages, salaries, tips, self-employment income, rental income, capital gains, and interest. However, Illinois has specific exemptions that the federal government does not.

Social Security benefits are completely exempt from Illinois state tax, even though they may be taxable at the federal level. Distributions from IRAs and 401(k) plans are also exempt, as long as they come from accounts that were funded with pre-tax contributions. This exemption applies to both regular distributions and early withdrawals.

Pension income from public employee retirement systems is exempt. This includes pensions from teachers, police officers, firefighters, and other state and local government workers. Military retirement pay is also exempt.

Interest from U.S. Treasury bonds and Illinois municipal bonds is exempt. Dividend income is taxed, but you may claim a dividend tax credit if you meet certain conditions.

How to calculate what you owe

Start with your federal adjusted gross income (AGI) from your Form 1040. This is the number at the bottom of page one of your federal return. Illinois uses this as the starting point for state tax calculations.

Next, add back any income that is exempt from Illinois tax but was included in your federal AGI. The most common adjustment is Social Security benefits. If you received $15,000 in Social Security and $25,000 in wages, your federal AGI might be $40,000, but your Illinois taxable income would be $25,000 because Social Security does not count.

Then subtract the Illinois standard deduction. For 2024, the standard deduction is $2,575 for single filers and $5,150 for married couples filing jointly. You can also itemize deductions instead if they exceed the standard deduction, though fewer people do this since the federal standard deduction increased in recent years.

Multiply your final taxable income by 4.95%. This is your state income tax before credits. You then subtract any credits you may have access to for, such as the earned income tax credit or property tax credit, to get your final tax owed.

Withholding and estimated payments

If you receive a W-2 paycheck, your employer withholds Illinois state income tax automatically. You tell your employer how much to withhold by completing Form IL-W-4 when you start the job. If you want to change your withholding during the year, you can submit a new form to your payroll department.

If you are self-employed or have income that does not have withholding, you may need to make estimated tax payments to Illinois four times per year. These are due on the 15th of April, June, September, and January. You calculate estimated payments based on your expected annual income and pay them directly to the Illinois Department of Revenue.

If you did not pay enough tax throughout the year, either through withholding or estimated payments, you will owe the difference when you file your return. If you overpaid, you receive a refund or can request that the overpayment be applied to next year's tax.

Filing your Illinois return

You file Form IL-1040 by mail or electronically through the Illinois Department of Revenue website. The filing important date is the same as the federal important date, typically April 15th. If you file your federal return late and request an extension, the extension also applies to your Illinois return.

You can file electronically through approved tax software or through a tax professional. The Illinois Department of Revenue does not offer a free online filing system itself, but many commercial tax software providers include Illinois forms at no cost if your income is below a certain threshold.

When you file, attach a copy of your federal return and any schedules you used. The state uses your federal return to verify your income and deductions. If you made changes to your federal return after filing, you must also file an amended Illinois return on Form IL-1040-X.

Frequently Asked Questions

Do I have to file an Illinois return if I moved out of state during the year?

Yes, if you lived in Illinois for any part of the tax year, you must file a return for that year. You report income for the months you lived there. If you also worked in another state, you may need to file returns in both states, though you can claim a credit for taxes paid to the other state to avoid double taxation.

Is Illinois income tax withheld from my Social Security check?

No. Social Security benefits are exempt from Illinois state tax, so no withholding occurs. However, if you have other income like wages or a pension, you may still owe state tax on that income. Social Security is only exempt; it does not reduce the tax you owe on other sources.

What happens if I do not file an Illinois return?

The Illinois Department of Revenue can assess penalties and interest on unpaid taxes. If you are due a refund, you cannot receive it without filing. The state can also place a hold on your driver's license or pursue collection action. Filing even if you owe nothing protects you from these consequences.

Can I deduct property taxes on my Illinois return?

No, you cannot deduct property taxes on your state return. However, Illinois offers a separate property tax credit that you claim on your return if you own a home and meet income limits. This credit is different from a deduction and may reduce your tax owed directly.

Do I need to file if I only earned income outside Illinois?

No, if you did not live in Illinois during the year and earned no income there, you do not file an Illinois return. However, if you lived in Illinois for any part of the year, you must file even if all your income came from out-of-state sources.