Illinois charges a flat 4.95% tax on all 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, interest, dividends, and most other forms of income. You do not pay more if you earn $50,000 or $500,000 — the rate stays at 4.95%.

This is different from federal income tax, which uses brackets where higher earners pay higher percentages. Illinois keeps it simple: one rate for everyone. If you earn $40,000 in taxable income, you owe $1,980 in state income tax. If you earn $100,000, you owe $4,950.

The 4.95% rate has been in place since 2017. Before that, Illinois had a lower rate of 3.75%, but it increased as part of a budget agreement. The rate applies to income earned in Illinois even if you live elsewhere, and to income earned elsewhere if you are an Illinois resident.

Key Takeaways

  • Illinois taxes all income at a single flat rate of 4.95%, with no variation based on how much you earn.
  • You owe state income tax on wages, self-employment income, interest, dividends, and retirement distributions, but not on Social Security benefits.
  • Your employer normally withholds Illinois income tax from your paycheck, so you may not owe anything extra when you file your return.
  • Illinois offers a property tax credit and a dependent exemption that can reduce your tax bill if your income is below certain thresholds.

What income counts toward the 4.95% tax

The 4.95% rate applies to most types of income you receive. This includes wages from a job, self-employment income, interest from savings accounts and bonds, dividends from stocks, rental income, and distributions from retirement accounts like IRAs and 401(k)s. If money comes in, Illinois wants its 4.95% share.

Some income is exempt. Social Security benefits are not taxed by Illinois, even though they may be taxed federally. Certain military pensions and disability payments are also excluded. Municipal bond interest is not taxed. But ordinary wages and investment income are taxed at the full 4.95% rate.

If you are self-employed, you owe income tax on your net profit after business expenses. You also owe federal self-employment tax, which is separate. Illinois does not collect self-employment tax — only the 4.95% income tax on your net earnings.

How withholding works and what you owe at tax time

If you work for an employer, they withhold Illinois income tax from your paycheck automatically. Your employer uses a withholding form to determine how much to take out. Most people have enough withheld that they do not owe anything when they file their Illinois return in April, or they receive a small refund.

The amount withheld depends on your W-4 form and how much you earn. If you claim more allowances on your W-4, less is withheld. If you claim fewer, more is withheld. You can adjust your withholding at any time by submitting a new W-4 to your employer. Many people adjust in January or after a major life change like a marriage or second job.

If you are self-employed or have income with no withholding, you may owe estimated taxes. Illinois requires you to pay estimated tax four times a year if you expect to owe $500 or more. You can pay online through the Illinois Department of Revenue website, or include the payment with your annual return.

Deductions and credits that reduce your Illinois tax bill

Illinois offers a dependent exemption that reduces your taxable income. For the 2024 tax year, you can deduct $2,575 for each dependent you claim. This lowers the amount of income subject to the 4.95% rate. If you have two children and earn $60,000, you can deduct $5,150, leaving $54,850 subject to tax.

The state also offers a property tax credit for renters and homeowners with lower incomes. The credit is based on your property taxes or rent paid and your household income. The maximum credit is $500, but most people receive less. You must file a return to claim it, even if you have no tax bill.

Unlike federal taxes, Illinois does not allow a standard deduction. You cannot reduce your income by a flat amount. You use the dependent exemption if you have dependents, and that is the main way to lower your taxable income on the state level.

Who files an Illinois return and when it is due

You must file an Illinois return if you are a resident and your income exceeds the filing threshold. For 2024, the threshold is $2,575 for a single person and $5,150 for a married couple filing jointly. If you earn less than that, you do not have to file. However, if you had taxes withheld, you should file to get a refund.

Non-residents who earned income in Illinois may also have to file, depending on how much they earned and whether taxes were withheld. If you worked in Illinois for part of the year, you file a part-year resident return.

Illinois returns are due on the same day as federal returns, which is typically April 15. If April 15 falls on a weekend or holiday, the deadline moves to the next business day. You can request an extension, which gives you until October 15 to file, but taxes are still due by April 15 or you will owe penalties and interest.

How to file your Illinois return

You can file your Illinois return on paper or electronically. The Illinois Department of Revenue accepts e-filed returns through approved software providers and tax professionals. E-filing is faster and reduces errors — most e-filed returns are processed within two weeks.

If you file on paper, mail your return and any supporting documents to the Illinois Department of Revenue at the address listed on the form. Paper returns take longer to process, usually four to six weeks. You can track the status of your return online through the Department of Revenue website if you file electronically.

Many people use free tax software if their income is below a certain threshold. The IRS Free File program includes Illinois state returns for may have access to filers. You can also work with a tax professional or use commercial tax software if you prefer.

Frequently Asked Questions

Do I have to pay Illinois income tax if I live out of state but work in Illinois?

Yes. Illinois taxes income earned within the state regardless of where you live. If you work in Illinois and live in another state, you owe Illinois income tax on your wages. You may also owe tax to your home state, depending on its rules. Some states offer credits to avoid double taxation.

Is Social Security taxed by Illinois?

No. Illinois does not tax Social Security benefits. However, the federal government may tax them depending on your total income. If you receive only Social Security, you will not owe Illinois state income tax on it.

What happens if I do not pay my Illinois income tax?

The Illinois Department of Revenue will send you notices and bills. If you do not respond, they can place a lien on your property, garnish your wages, or intercept your tax refunds. Penalties and interest accrue on unpaid taxes. If you cannot pay in full, you can set up a payment plan with the Department of Revenue.

Can I deduct federal income tax from my Illinois taxes?

No. Illinois does not allow you to deduct federal income tax paid. You can only use the dependent exemption and the property tax credit to reduce your Illinois tax bill.

What is the difference between the 4.95% rate and what I see withheld from my paycheck?

Your paycheck withholding is calculated based on the 4.95% rate and your W-4 form. The amount withheld should roughly equal your final tax bill, but it depends on your specific situation. If you claim too many allowances, too little is withheld and you owe money in April. If you claim too few, too much is withheld and you get a refund.