Illinois Tax Rates

This post provides an overview of the primary taxes levied at the state level in Illinois. The information contained here is intended for general reference. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Illinois utilizes a flat rate individual income tax system, meaning all taxable income is taxed at the same percentage, regardless of the taxpayer’s income level.

  • Tax Rate: The rate is a flat 4.95% of Illinois net income.
  • Retirement Income: A significant benefit for residents is that the state does not tax retirement income. This includes income from private and public pensions, 401(k) plans, IRAs, and Social Security benefits, all of which are fully exempt from the state income tax.
  • Exemptions: Taxable income is reduced by an exemption allowance (a specific dollar amount for the taxpayer, spouse, and dependents), which differs from a standard deduction. The personal exemption is phased out for high-income taxpayers.

Sales and Use Tax

Illinois has a high combined state and local sales tax burden due to the substantial local additions to the state rate.

  • State Rate: The general state sales tax rate is 6.25% on the retail sale of tangible personal property.
  • Local Taxes: Local jurisdictions (cities, counties, and mass transit districts like the Regional Transportation Authority or RTA) impose their own separate sales taxes, which can be up to 4.75%. The average combined state and local sales tax rate is approximately 8.92%, but can reach as high as 11% in some municipalities.
  • Reduced Rate: A lower, dedicated rate of 1% is levied statewide on qualifying food (groceries), drugs, and medical appliances, though local taxes may still apply to these items in some areas.
  • Use Tax: A state use tax of 6.25% applies to taxable items purchased outside of Illinois but stored, used, or consumed in the state if Illinois sales tax was not paid.

Property Tax (Ad Valorem Tax)

Property taxes in Illinois are administered and collected exclusively at the local level by school districts, counties, and municipalities. Illinois is generally known for having one of the highest effective property tax rates in the nation (averaging around 1.83% of home value).

  • Assessment Ratio (General): In most counties, residential property is assessed at 33.33% (one-third) of its fair market value. The tax owed is calculated by multiplying this assessed value by the local mill rate.
  • Cook County System: Cook County (which includes Chicago) uses a different, classified assessment system where residential property is assessed at a lower percentage (currently around 10%) compared to commercial and industrial property.
  • Property Tax Credit: Illinois offers a state income tax credit equal to 5% of the property taxes paid on a taxpayer’s principal residence, providing a modest offset against the high local property tax burden.

Corporate Income Tax

Illinois imposes a complex tax on the net income of corporations, which is composed of two separate taxes.

  • Total Rate: The total effective corporate income tax rate is 9.5%. This is one of the highest corporate tax rates in the U.S.
  • Components: This 9.5% is composed of:
    1. The standard Corporate Income Tax of 7.0%.
    2. The Personal Property Replacement Tax (PPRT) of 2.5%.
  • Replacement Tax: The 2.5% PPRT is a separate levy on the net income of corporations, partnerships, and trusts, designed to replace revenue lost when local property taxes on business-owned personal property were eliminated.
  • Pass-Through Entities: S Corporations and partnerships generally do not pay the 7.0% corporate income tax, but they are subject to a lower PPRT rate of 1.5% on their net income.
  • Apportionment: For multi-state corporations, Illinois uses a single sales factor apportionment formula to determine the portion of income taxable in the state.

Key Excise and Miscellaneous Taxes

Illinois relies heavily on excise taxes on certain goods and activities.

  • Motor Fuel Tax: A per-gallon tax is levied on motor fuels, which is subject to automatic inflation-based adjustments.
  • Cigarette Tax: The state imposes a high excise tax on cigarettes, currently $2.98 per pack of 20 cigarettes.
  • Estate Tax: Illinois is one of the states that imposes a state-level estate tax on estates exceeding a statutory exemption threshold, regardless of the federal estate tax rules.

R&D Offer Quiz

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Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.