Illinois has a flat income tax rate of 4.95 percent on most income

Illinois taxes income at a single rate rather than using brackets. That rate is 4.95 percent, and it applies to wages, salaries, interest, dividends, and most other forms of income you receive. This rate has been in place since 2017, when it increased from 3.75 percent.

The 4.95 percent rate is what you owe to the state after your employer withholds it from your paycheck or after you calculate what you owe when you file your return. It is separate from federal income tax, which uses its own brackets and rates. You pay both.

Illinois does not tax certain types of income. Retirement income — including Social Security benefits, pension payments, and distributions from retirement accounts — is not taxed by the state. Some types of interest income and gains from selling property also have exemptions, though the rules vary depending on when you received the income or what type of account holds it.

Key Takeaways

  • Illinois taxes most income at a flat rate of 4.95 percent, with no income brackets or higher rates for higher earners.
  • Social Security, pensions, and retirement account withdrawals are not subject to Illinois state income tax.
  • Your employer withholds the 4.95 percent from your paycheck, but you still file a state return each year to report all income and claim any credits or deductions you are owed.
  • The 4.95 percent rate applies to wages, self-employment income, interest, and dividends unless a specific exemption covers that income.

What income is taxed at the 4.95 percent rate

Wages and salaries are taxed at 4.95 percent. If you work for an employer, they withhold this amount from your paycheck. If you are self-employed, you calculate and pay the tax yourself when you file your return or make quarterly estimated payments.

Interest income from savings accounts, bonds, and other investments is taxed at 4.95 percent. Dividend income from stocks and mutual funds is also taxed at this rate. Capital gains — the profit you make when you sell an investment for more than you paid for it — are taxed as income at 4.95 percent.

Rental income, income from a side business or freelance work, and income from partnerships or S corporations are all taxed at 4.95 percent. If you receive income from any source that is not specifically exempted by Illinois law, assume it is subject to the 4.95 percent rate.

Income that Illinois does not tax

Social Security benefits are completely exempt from Illinois state income tax. This applies whether you receive Social Security as a retiree, a survivor, or a person with a disability. You do not report Social Security income on your Illinois return.

Pension income and distributions from retirement accounts — including IRAs, 401(k)s, 403(b)s, and similar plans — are not taxed by Illinois. This exemption applies to the full amount you withdraw, regardless of how much you take out or how old you are. The exemption covers both the contributions you made and the earnings that accumulated in the account.

Interest from certain bonds issued by Illinois or other states is exempt. Military pay for active-duty service members is also exempt from Illinois income tax. Some types of scholarship and fellowship income may be exempt depending on how the funds are used.

How withholding works on your paycheck

Your employer calculates the 4.95 percent withholding based on your gross pay and the number of allowances you claim on your W-4 form. The withholding is taken from each paycheck before you receive it. You can see the amount withheld on your pay stub under "IL tax" or "state income tax."

If you work for multiple employers or have income from sources other than wages, your total withholding may not be enough to cover what you actually owe. When you file your return, you may discover you owe additional tax. You can adjust your withholding by submitting a new W-4 to your employer, or you can make a payment when you file.

If your withholding is more than what you owe, you receive a refund. Illinois processes refunds throughout the year, though timing varies. You can check the status of a refund on the Illinois Department of Revenue website.

Filing your Illinois state income tax return

You must file an Illinois return if your income exceeds the threshold set by the state. For most people, this threshold is based on your federal filing requirement — if you have to file a federal return, you generally have to file an Illinois return too. Some people with lower incomes may not be required to file, but filing can be worth it if you had taxes withheld, because you may receive a refund.

Illinois returns are due on the same date as federal returns, typically April 15. You can file online through the Illinois Department of Revenue website, through tax software, or by mailing a paper return. If you need more time, you can request an extension, which gives you until October 15 to file.

When you file, you report all income you received during the year, including income your employer reported on your W-2 and income from other sources. You claim any deductions or credits you are owed. The most common credit is the Earned Income Tax Credit, which reduces the amount of tax you owe if your income is below a certain level.

Comparing Illinois income tax to other states

Illinois has one of the lower flat income tax rates in the country. States with flat taxes typically range from 2 to 5.75 percent. Some states, including Texas, Florida, and Nevada, have no state income tax at all. Other states use progressive brackets, meaning higher earners pay a higher percentage.

The 4.95 percent rate applies equally to everyone, regardless of income. A person earning $30,000 per year pays the same rate as a person earning $300,000. This is different from federal income tax, where rates increase as income increases.

What happens if you move to or from Illinois

If you move to Illinois during the year, you owe Illinois income tax only on income you earned while you were a resident. You report income earned before you moved on your previous state's return. Your employer should issue a W-2 that shows how much income was earned in each state, or you may need to calculate it yourself.

If you move out of Illinois, you owe Illinois tax only on income earned while you lived there. Some states have reciprocal agreements with Illinois, meaning residents of those states who work in Illinois may not owe Illinois tax. You can find information about reciprocal agreements on the Illinois Department of Revenue website.

If you are a resident of Illinois but work in another state, you may owe tax to both states. Illinois allows a credit for taxes paid to other states, which prevents you from paying tax twice on the same income. You claim this credit when you file your Illinois return.

Frequently Asked Questions

Does Illinois tax retirement income or Social Security?

No. Illinois does not tax Social Security benefits, pension income, or withdrawals from retirement accounts like IRAs and 401(k)s. This is one of the major tax breaks for retirees in Illinois. You do not report this income on your state return.

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

The 4.95 percent is the state tax rate. What is withheld from your paycheck depends on your gross pay and the allowances you claimed on your W-4. If you claimed too many allowances, less is withheld and you may owe when you file. If you claimed too few, more is withheld and you may receive a refund.

Do I have to file an Illinois return if I did not earn much income?

You must file if your income exceeds the state threshold, which is usually tied to the federal requirement. However, filing can be worth it even if you are not required to, because if you had taxes withheld, you may receive a refund. You can file for free through the Illinois Department of Revenue website.

What if I worked in multiple states during the year?

You report income to each state where you worked. Illinois allows a credit for taxes paid to other states, so you do not pay tax twice on the same income. Your W-2 should show how much income was earned in each state, or you can calculate it based on the dates you worked in each location.

Has the Illinois income tax rate changed recently?

The rate has been 4.95 percent since 2017. Before that, it was 3.75 percent. The state legislature can change the rate, but it has remained at 4.95 percent for several years. You can check the Illinois Department of Revenue website for any updates to tax law.