Illinois charges a flat 4.95% income tax on most wages and retirement income

Illinois has a flat income tax rate, meaning everyone pays the same percentage regardless of how much money they earn. That rate is 4.95% on wages, salaries, and most other income sources. You do not pay more or less based on your income bracket — the rate stays at 4.95% whether you earn $20,000 or $200,000 per year.

This flat rate applies to W-2 wages from an employer, 1099 self-employment income, retirement distributions from IRAs and 401(k)s, and pension income. Some types of income are taxed differently or not taxed at all, which is why your actual tax bill depends on what kind of income you receive, not just how much.

Key Takeaways

  • Illinois taxes wages, self-employment income, and retirement distributions at a flat 4.95% rate with no income brackets or higher rates for higher earners.
  • Long-term capital gains, municipal bond interest, and Social Security benefits are not subject to Illinois income tax.
  • Your employer withholds Illinois income tax from each paycheck based on a W-4 form you fill out, but the amount withheld may not match what you actually owe.
  • You file Illinois taxes using Form IL-1040 or IL-1040-SR (for seniors), which you submit to the Illinois Department of Revenue along with your federal return.
  • If you work in Illinois but live in another state, or live in Illinois but work in another state, different rules apply to which state gets to tax your income.

What income is taxed and what is not

The 4.95% rate applies to wages, salaries, bonuses, tips, and self-employment income. It also applies to distributions from retirement accounts like traditional IRAs, 401(k)s, and pensions. If you receive unemployment benefits, those are taxed at 4.95% as well.

Several types of income are not taxed by Illinois. Long-term capital gains — money you make selling stocks or property you have owned for more than a year — are exempt. Interest from municipal bonds issued by Illinois municipalities is exempt. Social Security benefits are not taxed. Interest and dividends from savings accounts and stocks are taxed at the federal level but not by Illinois.

Short-term capital gains (from selling something you owned less than a year) are taxed as ordinary income at 4.95%. Rental income and business income are also taxed at 4.95%. If you are unsure whether a specific type of income counts, the Illinois Department of Revenue website lists the full rules, or you can contact them directly.

How withholding works and why it may not match what you owe

When you start a job, your employer asks you to fill out a W-4 form. This form tells your employer how much Illinois income tax to withhold from each paycheck. The amount withheld is sent to the Illinois Department of Revenue on your behalf throughout the year.

The withholding amount is an estimate. If you claim too many allowances on your W-4, your employer withholds too little, and you may owe money when you file your return. If you claim too few allowances, your employer withholds too much, and you receive a refund. The only way to know for certain is to file your tax return and see what you actually owed.

If you have multiple jobs, receive retirement income, or have other sources of income, withholding becomes more complicated. You can adjust your W-4 at any time during the year, or you can wait until tax time and settle the difference when you file. Many people intentionally over-withhold so they receive a refund rather than owing money.

Filing your Illinois tax return

You file Illinois taxes using Form IL-1040 (or Form IL-1040-SR if you are 65 or older). You submit this form to the Illinois Department of Revenue, usually at the same time you file your federal return. The deadline is the same: April 15 of the following year, unless that date falls on a weekend or holiday.

You can file by mail or electronically. The Illinois Department of Revenue accepts e-filed returns through tax software and through tax professionals. If you file electronically, you typically receive a refund faster than if you mail a paper return.

You must file a return if your income is above a certain threshold. For 2024, that threshold is $2,575 for most people, though it varies by age and filing status. Even if you are below the threshold, you may want to file if you had taxes withheld, because you could receive a refund.

Deductions and credits available in Illinois

Illinois offers a standard deduction that reduces the amount of income you pay tax on. For 2024, the standard deduction is $2,575 for most filers, $3,250 for people 65 and older, and $3,250 for people who are blind. If you are married filing jointly, the amounts are higher. You can claim the standard deduction or itemize deductions, but most people claim the standard deduction because it is simpler.

Illinois also offers a Earned Income Tax Credit (EITC) for low-income workers. This is a refundable credit, meaning you can receive money back even if you owe no tax. The amount depends on your income and filing status. You claim the EITC on your Illinois return.

Property tax relief is available for homeowners and renters through the Property Tax Credit. You must meet income limits and file a separate form to claim it. Senior citizens may also be able to claim a Senior Citizen Property Tax Deferral, which allows you to defer property taxes until your estate is settled.

If you work in Illinois but live elsewhere, or vice versa

If you live in Illinois but work in another state, you generally pay tax to the state where you work, not Illinois. However, you may still owe Illinois tax on income earned within Illinois. The rules depend on whether the other state has a reciprocal agreement with Illinois.

If you live in another state but work in Illinois, you owe Illinois income tax on the wages you earn in Illinois. You file an Illinois return for that income and a return in your home state for any income earned there. Some states offer a credit for taxes paid to other states to prevent double taxation.

If you moved during the year, you may be a part-year resident. You file returns in both states for the portions of the year you lived in each. The Illinois Department of Revenue can provide guidance on your specific situation.

Frequently Asked Questions

Do I have to pay Illinois income tax if I am retired?

It depends on the source of your retirement income. Distributions from IRAs, 401(k)s, and pensions are taxed at 4.95%. Social Security benefits are not taxed by Illinois. If your only income is Social Security, you do not owe Illinois income tax. If you have retirement account distributions or a pension, you do owe tax on that income.

What happens if I do not file an Illinois tax return?

If you owe tax and do not file, the Illinois Department of Revenue can assess penalties and interest. If you had taxes withheld and do not file, you simply do not receive your refund — there is no penalty for not filing if you do not owe money. However, you have a limited time to claim a refund, typically three years from the original due date.

Can I file my Illinois return electronically?

Yes. You can file electronically through tax software, a tax professional, or directly through the Illinois Department of Revenue's website. E-filing is faster and more secure than mailing a paper return, and refunds are processed more quickly.

Is there a penalty for paying my Illinois taxes late?

Yes. If you owe tax and pay after April 15, you owe a failure-to-pay penalty of 0.5% per month (up to 25% total) plus interest. The interest rate varies but is typically around 8% per year. Paying as soon as you can reduces the total amount of penalties and interest you owe.

What if I think I paid too much in Illinois income tax?

File your return and claim the refund. If you filed a return and did not receive your refund within the expected timeframe, you can check the status on the Illinois Department of Revenue website or contact them directly. If you believe you overpaid in a prior year, you can file an amended return within three years of the original due date.