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

Illinois taxes your income at a single rate: 4.95 percent. This applies to wages, salaries, interest, dividends, and most other forms of income. Unlike some states that use a graduated system where higher earners pay higher rates, Illinois uses the same percentage for everyone, regardless of how much you make.

The 4.95 percent rate has been in place since 2017. Before that, the rate was 3.75 percent, but voters approved a constitutional amendment that allowed the state to increase it. This is the rate you will see on your state tax return and on your paychecks if your employer withholds state income tax.

Key Takeaways

  • Illinois taxes all income at a flat rate of 4.95 percent, meaning you pay the same percentage whether you earn $30,000 or $300,000 per year.
  • This rate applies to wages, salaries, interest, dividends, capital gains, and most other income sources reported on your Illinois tax return.
  • Your employer should withhold approximately 4.95 percent of your paycheck for state income tax, though the exact amount depends on your W-4 form and other factors.
  • Some types of income, such as Social Security benefits and certain retirement distributions, may be partially or fully exempt from Illinois state income tax.

What income is subject to the 4.95 percent rate

The 4.95 percent rate applies to most income you receive. This includes W-2 wages from an employer, self-employment income, interest earned in savings accounts or bonds, dividend payments from stocks, and capital gains from selling investments at a profit. If you receive a 1099 form for freelance work, rental income, or other business activity, that income is also taxed at 4.95 percent.

Some income is exempt or partially exempt. Social Security benefits are not taxed by Illinois, even though they may be taxed by the federal government. Distributions from certain retirement accounts, such as traditional IRAs or 401(k)s, are taxed as ordinary income at the 4.95 percent rate. However, if you are over 55 and receive a pension from an Illinois public employee system, that pension income may be exempt from state income tax under certain conditions.

How withholding works on your paycheck

Your employer withholds state income tax from each paycheck based on the information you provide on your Illinois W-4 form. The withholding is meant to cover your estimated tax liability for the year. If you claim zero allowances, your employer will withhold more; if you claim more allowances, less will be withheld. The goal is to have enough withheld so that you do not owe a large amount when you file your return in April.

The amount withheld is not exactly 4.95 percent of your gross pay. Your employer calculates withholding using tax tables that account for your pay frequency, filing status, and the allowances you claimed. If you change jobs, get married, have a child, or experience another major life change, you should update your W-4 to adjust your withholding. If too much is withheld, you will receive a refund when you file; if too little is withheld, you will owe money.

Comparing Illinois to other states

Illinois has one of the highest flat income tax rates in the country. States like Colorado (4.63 percent), Kentucky (5 percent), and Massachusetts (5 percent) have similar or slightly higher rates. However, many states use graduated tax systems where the rate increases with income, and some states have no income tax at all—including Texas, Florida, and Tennessee. The total tax burden also depends on sales tax, property tax, and other state and local taxes, which vary widely.

If you moved to Illinois from another state or are considering moving, your state income tax will change. A person earning $50,000 in Illinois pays roughly $2,475 in state income tax at the 4.95 percent rate. That same person in a no-income-tax state would pay zero state income tax on wages, though they might pay higher sales or property taxes instead.

Filing your Illinois state income tax return

You file your Illinois state income tax return using Form IL-1040, which you submit to the Illinois Department of Revenue. You must file if your income exceeds the filing threshold for your filing status. For 2024, most single filers must file if they earned more than $2,275; married couples filing jointly must file if they earned more than $4,550. These thresholds change each year based on inflation.

You can file online through the Illinois Department of Revenue website, by mail, or through a tax preparation service. If you are due a refund, you can request direct deposit to your bank account, which is faster than waiting for a check. If you owe money, you can pay online, by mail, or through an installment plan if you cannot pay in full by the April deadline.

Deductions and credits that reduce your tax

Illinois allows a standard deduction that reduces the income subject to the 4.95 percent tax. For 2024, the standard deduction is $2,275 for single filers and $4,550 for married couples filing jointly. If you have significant itemized deductions—such as mortgage interest or charitable donations—you may be able to deduct those instead, though Illinois does not allow all federal deductions.

Illinois also offers certain tax credits that directly reduce the amount of tax you owe. The Earned Income Tax Credit (EITC) is available to low- and moderate-income workers and is worth more in Illinois than the federal credit alone. If you have dependent children, you may also be may be able to access for the Child and Dependent Care Credit. These credits are subtracted from your total tax liability after you calculate the 4.95 percent tax on your income.

What happens if you do not pay

If you owe Illinois state income tax and do not pay by the April deadline, the state charges interest and penalties. Interest accrues at a rate set by the Department of Revenue, currently around 0.5 percent per month. A failure-to-pay penalty of 0.5 percent per month is also added, up to a maximum of 25 percent of the unpaid tax. If you file your return late, an additional failure-to-file penalty applies.

If you owe a significant amount and cannot pay, you can request an installment agreement with the Illinois Department of Revenue. You can also request an extension to file your return, though this does not extend the time to pay. If your debt remains unpaid for several years, the state may place a lien on your property or intercept your tax refund to cover the debt.

Frequently Asked Questions

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

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 income tax to your home state, depending on that state's rules. Some states offer credits to avoid double taxation.

Is the 4.95 percent rate the same for everyone, or do high earners pay more?

The rate is the same for everyone. Illinois uses a flat tax system, so a person earning $30,000 pays 4.95 percent, and a person earning $300,000 also pays 4.95 percent. This is different from the federal income tax, which uses graduated rates that increase with income.

What if my employer did not withhold enough state income tax?

You will owe the difference when you file your return in April. You can adjust your W-4 with your employer to increase withholding for future paychecks. If you expect to owe a large amount, you may want to make estimated tax payments to the Illinois Department of Revenue throughout the year to avoid a big bill at tax time.

Are retirement distributions taxed at the 4.95 percent rate?

Most retirement distributions are taxed as ordinary income at 4.95 percent. However, Social Security benefits are exempt. Distributions from IRAs and 401(k)s are taxed, but distributions from certain Illinois public employee pensions may be exempt if you meet specific age and service requirements. Check with the Illinois Department of Revenue or your plan administrator for your situation.