Illinois taxes most income at a flat rate of 4.95 percent

Illinois has a flat income tax, meaning everyone pays the same percentage regardless of how much money they earn. That rate is currently 4.95 percent on most types of income. You pay this on wages from a job, self-employment income, rental income, and certain investment gains. The state does not use a graduated system where higher earners pay higher rates.

The flat rate applies to your net income — what remains after you subtract certain deductions and exemptions allowed by Illinois law. This is different from your gross income, which is what you earn before any deductions. Your employer typically withholds this tax from your paycheck, similar to federal income tax withholding.

Key Takeaways

  • Illinois charges a flat 4.95 percent tax on most income, with no higher rate for higher earners.
  • Your employer usually withholds the tax from your paycheck, but self-employed people and some investors must pay estimated taxes quarterly.
  • Certain types of income — including Social Security, retirement account distributions, and municipal bond interest — are exempt from Illinois income tax.
  • You file Illinois taxes using Form IL-1040 if you owe tax or want a refund, and the deadline is typically April 15 unless you request an extension.

What income is taxed and what is not

Most ordinary income is subject to the 4.95 percent rate. This includes wages and salaries, tips, bonuses, commissions, and income from self-employment or a business. It also includes capital gains from selling stocks or property at a profit, though Illinois allows you to exclude 50 percent of long-term capital gains (gains on assets held more than one year).

Several types of income are exempt from Illinois state income tax entirely. Social Security benefits are never taxed by Illinois. Distributions from retirement accounts like IRAs and 401(k)s are exempt. Interest from municipal bonds issued by Illinois or other states is exempt. Unemployment benefits are also exempt. Some people receive income from pensions or annuities that may be partially or fully exempt depending on when they were earned and the source.

If you receive income from multiple sources, you may owe tax on some and not others. For example, a retiree receiving both Social Security and a pension might owe tax only on the pension portion, depending on the pension's source and structure.

How withholding works and when you pay

If you work as an employee, your employer withholds Illinois income tax from each paycheck based on information you provide on a Form IL-W-4. This form tells your employer how much to withhold. The withheld amount is sent to the Illinois Department of Revenue on your behalf. At the end of the year, you file a tax return to reconcile what was withheld against what you actually owe — if too much was withheld, you receive a refund; if too little, you owe the difference.

If you are self-employed or have income that is not subject to withholding, you must pay estimated taxes directly to Illinois four times per year. These payments are due on April 15, June 15, September 15, and January 15. You calculate your estimated tax based on your projected annual income and pay one-quarter of the total each quarter. Underpaying estimated taxes can result in penalties and interest.

Some income sources — such as interest, dividends, or rental income — may not have withholding applied automatically. You are responsible for reporting this income on your tax return and paying any tax owed.

Filing your Illinois tax return

Most people file using Form IL-1040, the Illinois individual income tax return. You must file if your income exceeds the filing threshold set by Illinois each year, or if you want to claim a refund of taxes withheld. The standard filing deadline is April 15, the same as federal taxes. You can request an automatic extension to October 15 if you need more time, though any tax owed is still due by April 15 to avoid penalties and interest.

You can file by mail or electronically through the Illinois Department of Revenue website. Many people use tax software or work with a tax professional. If you file electronically, you typically receive a refund faster than if you mail a paper return.

Illinois requires you to include your federal tax return information when you file, so you usually file your federal return first. Some deductions or credits you claim on your federal return may also reduce your Illinois tax, though Illinois does not recognize all federal deductions.

Deductions and credits that lower your tax

Illinois allows a standard deduction that reduces your taxable income. The amount varies by filing status and age and changes each year. For 2024, the standard deduction ranges from roughly $2,575 for a single filer to $5,150 for a married couple filing jointly, though these figures are updated annually. You can claim the standard deduction or itemize deductions if itemizing results in a larger reduction.

Illinois also offers certain tax credits that directly reduce the tax you owe. The Earned Income Tax Credit (EITC) is available to lower-income workers and is based on your federal EITC. The Property Tax Credit helps homeowners and renters with property tax or rent burden. The Child and Dependent Care Credit covers some costs of childcare. These credits are claimed on your tax return and can result in a refund if the credit exceeds your tax liability.

Some deductions are not allowed by Illinois even if you claim them on your federal return. For example, federal student loan interest deductions and certain education-related deductions may not reduce your Illinois taxable income. Review the Illinois Department of Revenue instructions for Form IL-1040 to confirm which deductions apply.

Who must file and common filing situations

You must file an Illinois return if your income exceeds the filing threshold for your situation. The threshold depends on your filing status, age, and type of income. Generally, if you earn more than the standard deduction amount, you should file. Even if you are not required to file, you may want to file if you had taxes withheld and are owed a refund.

If you work in Illinois but live in another state, you may owe Illinois tax on the income you earned in Illinois, even if you do not live there. Illinois taxes residents on all income from all sources, and it taxes nonresidents only on income earned within the state. Some states have reciprocal agreements that prevent double taxation, but you should verify your situation with both states' tax authorities.

If you moved to or from Illinois during the year, you file a part-year resident return. You report only the income earned during the months you were an Illinois resident (or nonresident, depending on the form). Your withholding and estimated tax payments are adjusted based on the portion of the year you were subject to Illinois tax.

Penalties, interest, and what happens if you do not file

If you owe tax and do not pay by the April 15 deadline, Illinois charges interest on the unpaid amount. The interest rate is set quarterly and is currently around 8 percent per year, though it changes. You also face a failure-to-pay penalty of 0.5 percent per month of the unpaid tax, up to a maximum of 25 percent. If you file your return late, there is an additional failure-to-file penalty of 5 percent per month, up to 25 percent.

If you do not file at all and owe tax, the Illinois Department of Revenue can assess tax based on information it receives from employers or other sources. You may also lose the right to claim a refund if you do not file within a certain period. Filing even if you cannot pay is better than not filing, because it stops the failure-to-file penalty from accruing.

If you believe you cannot pay what you owe, contact the Illinois Department of Revenue to discuss payment plans or hardship relief. The department offers installment agreements that allow you to pay over time with interest and penalties still accruing.

Frequently Asked Questions

Does Illinois tax Social Security or retirement income?

Social Security is never taxed by Illinois. Retirement account distributions like 401(k) and IRA withdrawals are exempt from Illinois tax. However, some pension income may be taxable depending on the source and when it was earned. Check with your pension provider or the Illinois Department of Revenue if you are unsure whether your specific pension is taxable.

What if I work in Illinois but live in another state?

You owe Illinois tax on income you earned in Illinois, even if you live elsewhere. You file as a nonresident and report only Illinois-source income. Some states have reciprocal agreements that may exempt you from Illinois tax if you live in that state, but you should verify with both Illinois and your home state to avoid double taxation.

Can I get an extension to file my Illinois return?

Yes, you can request an automatic extension to October 15. However, any tax you owe is still due by April 15 — the extension only gives you extra time to file the return itself, not to pay. If you do not pay by April 15, interest and penalties begin accruing on the unpaid amount.

What if I did not have enough tax withheld from my paycheck?

When you file your return, you will owe the difference between what was withheld and what you actually owe. You can adjust your withholding for the future by submitting a new Form IL-W-4 to your employer. If you have multiple jobs or significant other income, you may need to increase your withholding to avoid owing again next year.

How do I know if I need to file an Illinois return?

You must file if your income exceeds the filing threshold for your filing status and age. The threshold changes each year. Even if you are not required to file, you should file if you had taxes withheld and expect a refund. Check the Illinois Department of Revenue website for the current year's filing requirements.