Illinois charges a flat income tax on wages, retirement income, and other earnings
Illinois has a flat income tax rate, which means everyone pays the same percentage regardless of how much money they earn. As of 2024, that rate is 4.95 percent on most types of income. You pay this tax on wages from a job, self-employment income, retirement distributions, interest, dividends, and rental income.
The state collects this tax in two ways: your employer withholds it from your paycheck, or you pay it directly when you file your state tax return. If you live in Illinois and earn income there, you owe Illinois income tax even if you work for a company based in another state.
Illinois does not tax Social Security benefits, and certain retirement income has special treatment. Military pensions and some other government pensions are also exempt. However, most other income sources are taxable at the standard 4.95 percent rate.
Key Takeaways
- Illinois taxes income at a flat rate of 4.95 percent, applied equally to all income levels.
- Your employer typically withholds Illinois income tax from your paycheck automatically, but you report the actual amount owed when you file your state return.
- Social Security benefits and military pensions are not subject to Illinois income tax, but wages, self-employment income, and most retirement distributions are.
- If you move out of Illinois or work in another state, you may owe taxes to both states depending on where you earned the income and where you lived.
How withholding works on your paycheck
When you start a job in Illinois, your employer asks you to complete a W-4 form (or an Illinois-specific withholding form for state purposes). This tells your employer how much money to hold back from each paycheck for state income tax. The amount depends on your filing status, the number of dependents you claim, and other income you may have.
Your employer sends the withheld money to the Illinois Department of Revenue on your behalf. At the end of the year, you receive a W-2 form showing how much was withheld. When you file your state return, you compare what was actually withheld to what you actually owe. If too much was withheld, you get a refund. If too little was withheld, you owe the difference.
If you are self-employed or have income without withholding, you may need to make estimated tax payments to Illinois four times per year. This prevents a large bill when you file your return.
Who has to file an Illinois state tax return
You must file an Illinois state return if you earned enough income to owe state tax, even if you do not owe federal tax. The income threshold depends on your age and filing status. Generally, if you had any Illinois income tax withheld from your paychecks, you should file to get a refund of any overpayment.
You also file if you are self-employed and had net earnings of $400 or more, or if you had income from sources that did not have withholding. Non-residents who earned income in Illinois may also need to file an Illinois return even if they do not live there.
The Illinois Department of Revenue publishes current income thresholds on its website each year. If you are unsure whether you need to file, checking those thresholds or speaking with a tax preparer can clarify your situation.
Types of income that are taxed in Illinois
Wages and salaries are the most common taxable income. This includes regular paychecks, bonuses, and tips. Self-employment income is also taxed at 4.95 percent after you subtract business expenses.
Investment income such as interest from savings accounts, dividends from stocks, and capital gains (profit from selling an asset) are all taxable. Retirement distributions from IRAs, 401(k)s, and other retirement accounts are taxed, with some exceptions for certain military and government pensions. Rental income from property you own is taxable after you subtract allowable expenses.
Unemployment benefits, gambling winnings, and prizes are also subject to Illinois income tax. However, gifts and inheritances are not taxed as income in Illinois.
Income that is not taxed in Illinois
Social Security benefits are completely exempt from Illinois income tax, regardless of how much you receive. This is one of the most significant exemptions for retirees. Military pensions and certain government employee pensions are also not taxed by the state.
Some retirement income receives special treatment. Distributions from certain state and local government pension plans are exempt. Additionally, income from certain bonds issued by Illinois or other states may be exempt depending on the type of bond.
Disability payments from Social Security (SSDI) are not taxed. Workers' compensation benefits are also exempt. If you receive income from sources you believe should not be taxed, the Illinois Department of Revenue website lists the full rules, or you can contact them directly.
What happens if you move to or from Illinois
If you move out of Illinois during the year, you owe Illinois income tax only on the income you earned while you lived there. You file a part-year resident return showing the dates you lived in the state. The other state where you moved may also tax your income, but most states have agreements to prevent double taxation on the same income.
If you move to Illinois from another state, you owe Illinois tax on income earned after you arrive, even if your employer is in the other state. You may still owe tax to your former state on income earned there. Some states offer credits for taxes paid to other states, which you claim on your federal return.
If you work in Illinois but live in another state, Illinois taxes the income you earned in the state. Your home state may also tax it. Again, federal credits and state agreements usually prevent paying tax twice on the same dollar.
How to file your Illinois state tax return
You can file your Illinois return using paper forms or electronically. The Illinois Department of Revenue accepts returns filed through tax software, tax preparation services, or directly on its website. Most people file electronically because it is faster and reduces errors.
You will need your W-2 forms from employers, 1099 forms for other income, records of any estimated payments you made, and documentation of any deductions or credits you claim. The important date to file is typically April 15, the same as the federal important date, though you can request an extension.
If you cannot pay what you owe, you can still file your return on time and set up a payment plan with the Illinois Department of Revenue. Filing late without a valid reason results in penalties and interest on the unpaid tax.
Frequently Asked Questions
Do I have to pay Illinois income tax if I work remotely for a company in another state?
Yes, if you live in Illinois and work remotely, you owe Illinois income tax on your wages. Illinois taxes income based on where you live and earn it, not where your employer is located. Your employer should withhold Illinois tax from your paycheck if you provided the correct withholding information.
Why is my Illinois tax refund taking so long?
Illinois processes refunds in the order returns are received. Paper returns take longer than electronic ones. If you filed electronically and it has been more than 30 days, you can check the status on the Illinois Department of Revenue website using your Social Security number and return information.
Can I deduct federal income tax paid from my Illinois return?
No, Illinois does not allow a deduction for federal income tax paid. However, Illinois does allow certain other deductions such as contributions to retirement accounts and education savings plans. The Illinois Department of Revenue website lists all allowed deductions for the current year.
What if I owed Illinois income tax but did not file a return?
Contact the Illinois Department of Revenue as soon as possible. Filing late results in penalties and interest, but filing voluntarily is better than waiting for the state to contact you. The department may work with you on a payment plan if you cannot pay the full amount when ready.
Is Illinois income tax the same as property tax?
No, they are separate taxes. Income tax is based on what you earn. Property tax is based on the value of real estate you own and is collected by your local county or municipality. Both explore in Illinois, but they are calculated and collected differently.