Illinois is where this firm is based. The state has a simple-looking income tax and a layered set of everything else: a separate "replacement tax" on businesses, local sales taxes that differ by address, and property taxes run entirely by counties. This page explains Illinois tax if you live, work, own property or have employees here.
Individual income tax
Illinois taxes individuals at a flat rate of 4.95 percent of net income, according to the Illinois Department of Revenue (IDOR). You file Form IL-1040, usually through MyTax Illinois, and the return starts from your federal adjusted gross income.
Retirement income gets favorable treatment. You may subtract the federally taxed part of Social Security and railroad retirement benefits, plus federally taxed income from 401(k) plans, IRAs, and government retirement plans. Capital gains are generally taxed at the same flat rate as other income.
If you lived in Illinois for part of the year, or live elsewhere but earned Illinois-source income (wages for work done here, rental property, a business operating here), you file as a part-year resident or nonresident and use Schedule NR to figure the Illinois share. This matters for remote workers and people who move mid-year. Our multi-state tax service covers those situations.
One 2026 change to know: for tax years ending on or after December 31, 2026, Illinois requires individuals, trusts, estates and partnerships to add back gains that federal law excludes under the qualified small business stock rules (Section 1202). If you hold startup equity, plan for that before a sale.
Business taxes
A regular C corporation pays Illinois corporate income tax at 7 percent plus Personal Property Replacement Tax (PPRT) at 2.5 percent. Partnerships, trusts and S corporations pay PPRT at 1.5 percent of net income at the entity level, even though their owners also pay income tax on their share. This surprises many first-time S corporation owners. See our guide to S corporation taxes for the federal side.
Partnerships and S corporations may also elect the pass-through entity (PTE) tax at 4.95 percent, made on Form IL-1065 or IL-1120-ST. The election is irrevocable after the extended due date. It exists as a workaround to the federal limit on the state and local tax deduction (see SALT deduction and property taxes). IDOR's 2026 bulletin says that for tax years ending on or after December 31, 2026, partnerships can choose between two ways of computing the tax base, and must say which on the IL-1065. New businesses register with the Illinois Secretary of State (LLCs and corporations) and with IDOR through MyTax Illinois for withholding and sales tax accounts.
Sales and use tax
The state general merchandise rate is 6.25 percent, and local governments add their own taxes, so the total depends on the address. IDOR does not publish one combined list; you use the Tax Rate Finder in MyTax Illinois. Qualifying drugs and medical appliances are taxed at a lower 1 percent state rate.
Groceries changed on January 1, 2026. The state eliminated its 1 percent tax on groceries, and cities and counties may now impose their own 1 percent local grocery tax by ordinance. Counties can only do so in unincorporated areas. Existing Regional Transportation Authority grocery taxes in the Chicago area were not eliminated. See our sales tax service and nexus guide.
Payroll and employer obligations
- Withholding: register through MyTax Illinois and deposit and report Illinois income tax withheld from employee wages. See state income tax withholding.
- Unemployment insurance: register with the Illinois Department of Employment Security (IDES). Most for-profit employers become liable after paying $1,500 in wages in a calendar quarter or employing someone for 20 weeks in a year. The 2026 taxable wage base is $14,250 per employee, and your rate depends on your experience. Reports and payments go through MyTax Illinois. More in state unemployment insurance.
- New hires: report within 20 days of the first day on payroll. See new hire reporting.
- Paid leave: under the Paid Leave for All Workers Act, employees earn at least one hour of paid leave for every 40 hours worked, up to 40 hours in a 12-month period, usable for any reason after 90 days. Employers covered by the Chicago or Cook County ordinances are handled under those rules instead.
- Retirement savings: employers with at least five Illinois employees in each quarter of the prior year, in business two or more years and with no qualified plan, must participate in My Illinois Savings (formerly Illinois Secure Choice), run by the State Treasurer.
For more, see our payroll services page.
Chicago, Cook County and the suburbs
Illinois cities and counties generally have no power to levy income or wage taxes, so working in Chicago does not create a city income tax. Chicago does, however, levy its own taxes on things like amusements, hotel stays, restaurant sales and personal property leases, set by city ordinance and collected by the City's Department of Finance. Chicago also has its own Paid Leave and Paid Sick and Safe Leave Ordinance, in effect since July 1, 2024. Cook County has its own paid leave ordinance too. See local payroll taxes by city and county.
Property tax is local. IDOR states that it does not administer property tax. In Cook County the Assessor values property, the Board of Review hears appeals, the Clerk calculates rates and the Treasurer bills and collects. Cook County reassesses on a three-year cycle: Chicago in 2024 and 2027, the north suburbs in 2022 and 2025, and the south and west suburbs in 2023 and 2026. In DuPage County, 2025 taxes were billed in 2026 with installments due June 1 and September 1, and late payments accrue interest of 1.5 percent a month. Will, Kane and Kendall counties run their own calendars; see our Naperville, Aurora and Chicagoland pages.
How we can help
We prepare Illinois individual and business returns, handle part-year and nonresident filings, review whether a PTE election makes sense, and set up payroll with IDOR and IDES. If you have received a letter from either agency, see state tax notices and representation. Our office is in Naperville, and we also work with Illinois clients remotely. Contact us to start a conversation. This page is general information, not advice for your situation.
Frequently asked questions
Does Illinois tax Social Security and retirement income?
Illinois lets you subtract the federally taxed portion of Social Security and most retirement income, so these are generally not taxed by the state. Other income, such as wages and investment income, is taxed at 4.95 percent.
Do I owe Illinois tax if I work remotely for an Illinois employer from another state?
It depends on where the work is physically performed and on the other state's rules. Illinois taxes Illinois-source income of nonresidents, and remote work can create credits and complications between states.
Official sources
- IDOR: Income tax rates
- IDOR: 2026 income tax changes, Bulletin FY 2027-01
- IDOR: Grocery tax changes effective January 1, 2026
- IDES: 2026 state experience factor and UI contribution rates
- Illinois Department of Labor: Paid Leave for All Workers Act FAQ
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.