Yes, Illinois has a state income tax, and it applies to most income you earn

Illinois charges a flat state income tax of 4.95% on most types of income. This is a single rate that applies to everyone—there are no tax brackets that change based on how much you earn. The tax is withheld from paychecks, retirement distributions, and other income sources, and you report it when you file your state tax return each year.

The 4.95% rate has been in place since 2017. Before that, the rate was 3.75%, but it increased as part of a broader tax law change. Illinois is one of the states that does collect income tax, unlike states such as Texas, Florida, and Tennessee, which have no state income tax at all.

Key Takeaways

  • Illinois taxes most income at a flat rate of 4.95%, with no variation based on income level.
  • Wages, salaries, retirement income, and business income are all subject to Illinois state income tax.
  • Your employer typically withholds the tax from your paycheck, but you still file a state return to report all income and claim any refund.
  • Certain types of income, such as Social Security benefits and some retirement distributions, may be partially or fully exempt from Illinois income tax.

What income is taxed in Illinois

Illinois taxes wages and salaries from your job, self-employment income if you run a business, interest and dividends from investments, rental income, and retirement distributions from IRAs and 401(k)s. If you receive income from any of these sources while living in Illinois, you owe state income tax on it.

The state also taxes income you earn outside Illinois if you are a resident. If you work in another state or receive income from out-of-state sources, you still report that income to Illinois and pay the 4.95% tax. However, Illinois allows you to claim a credit for taxes you paid to another state, so you do not pay tax twice on the same income.

Income that is not taxed in Illinois

Social Security benefits are not taxed by Illinois, even though they may be taxed by the federal government. This is one of the few major income sources that gets a full exemption at the state level.

Certain retirement income also receives special treatment. If you are age 55 or older and receive income from a pension, 401(k), or IRA, part or all of that income may be exempt from Illinois state tax, depending on the source and your age. Military pensions are fully exempt. Public employee pensions (from teachers, police, and other government workers) are also exempt. Private pensions and retirement account distributions have different rules, so you may want to check with a tax professional if you are receiving retirement income.

Municipal bond interest is not taxed by Illinois, though it is also not taxed by the federal government. If you own bonds issued by Illinois cities or counties, the interest you earn is tax-free at the state level.

How withholding works on your paycheck

When you start a job in Illinois, you fill out a W-4 form (or an Illinois-specific withholding form) that tells your employer how much state income tax to take out of each paycheck. Your employer sends that money to the Illinois Department of Revenue on your behalf. The amount withheld is based on your pay frequency, the number of dependents you claim, and other factors you list on the form.

Withholding is not a payment—it is a prepayment toward your tax bill. When you file your state tax return, you report all the income you earned and all the tax that was withheld. If more was withheld than you owe, you receive a refund. If less was withheld, you owe the difference. Most people adjust their withholding so that they break even or receive a small refund.

Filing your Illinois state tax return

You file your Illinois state tax return using Form IL-1040 or a simplified version if your income is below a certain threshold. The important date is the same as the federal important date—usually April 15. You can file by mail or electronically through the Illinois Department of Revenue website or through tax software.

If you earned income in Illinois during the year, you must file a return even if no tax was withheld. This is how you report income from self-employment, side work, investments, or other sources that your employer did not withhold tax from. Filing also allows you to claim any refund you are owed if too much tax was withheld.

If you moved out of Illinois during the year, you may file a part-year resident return. You report only the income you earned while living in Illinois and pay tax only on that portion. The same applies if you moved to Illinois partway through the year.

Tax credits and deductions available in Illinois

Illinois offers a standard deduction that reduces the amount of income you pay tax on. The standard deduction amount varies by filing status and age. For 2024, the standard deduction for a single filer under age 65 is $2,575, and for married filing jointly it is $5,150. If you are age 65 or older, your standard deduction is higher.

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 Illinois EITC is calculated as a percentage of the federal EITC, so if you may have access to for the federal credit, you likely may have access to for the state credit as well. You claim it on your state return.

Some taxpayers may also claim credits for property taxes paid, child care expenses, or other specific situations. The Illinois Department of Revenue website lists all available credits and the forms needed to claim them.

Frequently Asked Questions

Do I have to file an Illinois tax return if I did not work there the whole year?

If you earned any income in Illinois during the year, you must file a return. If you moved to Illinois partway through the year, you file as a part-year resident and report only the income earned after you moved. If you moved out of Illinois, you report only the income earned before you left.

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

The Illinois Department of Revenue can assess penalties and interest on unpaid taxes. If you are owed a refund, you cannot receive it without filing. The state can also place a hold on your driver's license or other state services if taxes remain unpaid for a long time.

Can I deduct federal income tax from my Illinois state taxes?

No, Illinois does not allow you to deduct federal income tax paid. You calculate your Illinois tax based on your income after the standard deduction, not on your federal tax bill.

Is there a penalty for underpaying estimated taxes during the year?

If you are self-employed or have income that is not subject to withholding, you may need to make quarterly estimated tax payments to Illinois. If you underpay, the state may assess a penalty. You can avoid the penalty by paying 90% of your current year tax or 100% of your prior year tax, whichever is smaller.