Illinois charges a flat income tax on wages, retirement income, and some other earnings

Illinois has a flat income tax rate, which means everyone pays the same percentage regardless of how much money they make. As of 2024, that rate is 4.95 percent on most income. This is different from the federal income tax, which uses brackets — you pay a higher percentage as you earn more.

The state collects this tax from your paycheck if you work in Illinois or live there. You also owe Illinois tax on retirement distributions, investment income, and self-employment earnings, though some types of income are exempt. The Illinois Department of Revenue handles collection and enforcement.

Unlike federal tax, Illinois does not let you deduct dependents or use standard deductions to lower your taxable income. You pay 4.95 percent on nearly all income the state considers taxable, with a few specific exceptions built into law.

Key Takeaways

  • Illinois taxes income at a flat 4.95 percent rate, meaning you pay the same percentage whether you earn $30,000 or $300,000 per year.
  • Your employer withholds Illinois tax from your paycheck automatically if you work in the state, similar to federal withholding.
  • Retirement income, including distributions from IRAs and 401(k)s, is generally exempt from Illinois income tax.
  • You file an Illinois tax return (Form IL-1040) only if you owe tax or are owed a refund, not straightforward because you earned income.
  • Self-employed people and those with investment income must report those earnings and may owe estimated tax payments throughout the year.

Who has to file an Illinois tax return

You must file a return if you earned income in Illinois and owe tax on it. The threshold depends on your filing status and type of income. A single person with only wage income generally files if they earned more than $2,275 in 2023 (the threshold changes yearly). If you are married filing jointly, the threshold is higher.

You also file if your employer withheld Illinois tax from your paycheck — even if you do not owe anything — because you may be due a refund. Self-employed people and those with business income file regardless of the dollar amount, because the state needs to see the calculation.

If you lived in Illinois for only part of the year, you still file a return for the months you were a resident. The state considers you a resident if you maintained a home there with the intent to stay, even if you also worked out of state.

What income is taxed and what is exempt

Wages, salaries, and tips are fully taxable at 4.95 percent. So is self-employment income, business income, rental income, and most interest and dividends. However, Illinois law exempts certain types of income entirely.

Retirement income is the biggest exemption. Distributions from IRAs, 401(k)s, 403(b)s, and similar retirement accounts are not taxed by Illinois. Social Security benefits are also exempt. Pension income from a government employer (such as a teacher's pension or police pension) is exempt as well.

Capital gains — profit from selling stocks, real estate, or other assets — are taxed as ordinary income at 4.95 percent. Long-term capital gains do not receive special treatment in Illinois the way they do under federal tax. Interest from municipal bonds issued by Illinois municipalities is exempt, but interest from bonds issued by other states is taxable.

How withholding works and what to do if too much or too little is taken

When you start a job in Illinois, your employer asks you to complete a W-4 form. This tells them how much Illinois tax to withhold from each paycheck. The amount depends on your filing status, number of dependents, and other income in your household. Your employer sends the withheld money to the Illinois Department of Revenue on your behalf.

If too much tax is withheld, you will receive a refund when you file your return. If too little is withheld, you will owe money. You can adjust your withholding at any time by submitting a new W-4 to your payroll department — you do not need your employer's permission, and you can change it as often as needed.

Self-employed people do not have an employer to withhold tax, so they must send estimated tax payments to the state four times per year (roughly quarterly). If you do not pay enough through the year, you may owe a penalty when you file, even if you ultimately paid the full amount owed.

Filing your Illinois tax return and where to send it

Illinois uses Form IL-1040 as the main individual income tax return. You can file on paper by mailing it to the Illinois Department of Revenue, or you can file electronically through the state's online system or through tax software that supports Illinois returns.

The important date to file is the same as the federal important date — typically April 15 of the year following the tax year. If April 15 falls on a weekend or holiday, the important date moves to the next business day. You can request an extension, which gives you until October 15 to file, but the extension does not extend the time to pay any tax you owe.

If you file electronically, you will receive a refund faster — usually within two to four weeks. Paper returns take longer. You can check the status of your return on the Illinois Department of Revenue website using your Social Security number and the amount of tax you reported.

Tax credits and deductions available in Illinois

Illinois offers fewer deductions than the federal government does. You cannot claim a standard deduction or personal exemptions on your state return the way you do on your federal return. However, the state does offer some credits that reduce your tax bill directly.

The Earned Income Tax Credit (EITC) is available to low-income workers. Illinois bases its credit on the federal EITC, so if you may have access to for the federal version, you likely may have access to for the state version too. The credit is worth a percentage of your federal credit and reduces your Illinois tax dollar-for-dollar.

Illinois also offers a property tax credit for renters and homeowners with low income. You claim this on your tax return, and it reduces your state income tax. The amount depends on your income and rent or property tax paid during the year.

What happens if you do not file or pay

If you owe Illinois tax and do not file or pay, the state will pursue collection. The Department of Revenue can place a lien on your property, intercept your state income tax refund, or garnish your wages. They can also refer your case to a collection agency.

If you straightforward cannot pay the full amount, you can request a payment plan. The state will work with you to set up monthly installments, though interest and penalties continue to accrue on the unpaid balance. Contact the Illinois Department of Revenue directly to discuss options — waiting makes the debt larger.

If you filed late or made errors on your return, you can file an amended return using Form IL-1040-X. You have three years from the original due date to file an amendment and claim a refund, but the state can go back further if they believe you underreported income.

Frequently Asked Questions

Do I owe Illinois tax if I work in Illinois but live in another state?

Yes. Illinois taxes income earned within the state, regardless of where you live. However, you may be able to claim a credit on your home state's return for tax paid to Illinois, so you do not pay twice on the same income. Check with your home state's tax authority about reciprocal agreements.

Are 401(k) contributions taken out before or after Illinois tax?

Traditional 401(k) contributions are taken out before federal income tax but after Illinois state tax. This means you pay Illinois tax on the money you contribute to a traditional 401(k), even though you do not pay federal tax on it. Roth 401(k) contributions are taken out after both federal and state tax.

What if I moved to Illinois partway through the year?

You file an Illinois return only for the months you were a resident. Your employer should adjust your withholding when you move, but if they do not, you can file an amended W-4. When you file your return, you report only the income earned while you lived in Illinois.

Can I file my Illinois return without filing federal?

Yes, you can file an Illinois return independently. However, if you owe federal tax, the IRS can intercept your Illinois refund to pay what you owe federally. It is generally simpler to file both at the same time, but there is no legal requirement to file federal if you do not owe federal tax.

How do I know if my withholding is correct?

If you receive a large refund or owe a large amount when you file, your withholding is off. Use the Illinois Department of Revenue's withholding calculator on their website to estimate what you should have withheld, then submit a new W-4 to your employer to adjust it for the current year.