Illinois State Tax
Illinois State Tax: What You Need To Know
Illinois is one of the few states in the US that has a state tax. For many taxpayers, understanding Illinois state tax seems to be a daunting task. We all know that paying tax is not one of the most exciting things to do, but it is important to grasp a basic understanding of Illinois state tax requirements.
In this article, we’ll outline everything you need to know about Illinois state tax, including rates, deductions, and a few tips to help you manage your state tax obligations efficiently.
What Is Illinois State Tax?
Illinois state tax is a personal income tax levied by the state of Illinois on the income of its residents. It is a progressive tax, which means the tax rate increases as the taxable income increases. The revenue generated from this tax is generally used to fund various public services such as healthcare, education, public safety, and infrastructural developments.
Who Must Pay Illinois State Tax?
If you live or work in Illinois, you are required to pay state income tax on your earnings. This applies to all individuals, businesses, trusts, and estates that generate an income in the state.
Residents must also file state tax returns if they have an annual income of $2,275 or more, and non-residents who have earned an income of $1,000 or more in Illinois are also required to file. However, there are a few exemptions that apply. For instance, if you’re under 18 years of age, your annual income is less than $9,000 or if you’re exempt from filing a federal tax return, you’re not required to file a state income tax return.
What Are The Illinois State Tax Rates?
Illinois has a flat tax rate system of 4.95%. This means that all residents pay the same tax rate, regardless of their income level. The tax is calculated based on the net income of an individual, which is the total income received after deductions and exemptions are subtracted.
Illinois State Tax Deductions
To calculate your tax liability, you are allowed to make a variety of deductions. Here are some of the most common deductions for Illinois state income tax:
Standard Deduction: For single and married taxpayers (filing separately), the standard deduction for tax year 2020 is $12,400. The standard deduction for heads of households and married taxpayers (filing jointly) is $24,800.
Dependency Exemption: Taxpayers are allowed up to $2,325 per dependent exemption.
Retirement Income Deduction: Seniors receiving retirement income from Social Security are eligible for a retirement income deduction. The deduction is equal to the lesser of $6,000 or the total amount of Social Security benefits received during the tax year.
Charitable Contributions: Donations made to charitable organizations or churches can be deducted up to the amount of the donation.
Note that there are many other deductions available, such as healthcare, property taxes, life insurance premiums, and more. It's essential to keep track of all your deductions throughout the year to ensure you receive the maximum deductions on your Illinois state tax return.
📝 See Also
Illinois State Tax Forms
To file your Illinois state tax return, you’ll need to use either Form IL-1040 (Individual Income Tax Return) or Form IL-1040-SR (Senior Citizens and Persons with Disabilities).
Form IL-1040 is used by most Illinois taxpayers to report their annual income and calculate their tax liability. If you are married filing jointly, you and your spouse will need to file a joint return.
Form IL-1040-SR is used exclusively by senior citizens or persons with disabilities who have a qualifying gross income of $75,000 or less single and $100,000 or less for those married filing jointly.
Both forms can be found on the Illinois Department of Revenue (IDOR) website. The forms can be completed either online or printed out and mailed to the IDOR.
When Are Illinois State Taxes Due?
Illinois state taxes are due on April 15th, the same date as federal taxes. Late taxes are subject to penalties and interest.
There is a six-month extension available for filing your Illinois state tax return, but this does not extend the deadline for tax payments.
How To Pay Illinois State Tax?
Once you’ve filed your return and determined your tax liability, you have several payment options to choose from. You can pay your Illinois state taxes online, via phone, or by mail.
Electronic Payment Options: Illinois taxpayers can make their state tax payments through the state's electronic payment system called ePay. You will need your bank routing number and checking account number to make a payment electronically.
Credit or Debit Card: Credit and Debit card payments can be made through third-party service providers authorized by the Illinois Department of Revenue.
Mail: Illinois state tax payments can also be mailed by check or money order. Mail your payment to Illinois Department of Revenue, P.O. Box 19014, Springfield, IL 62794-9014.
Important Changes to Illinois State Tax Law
In July 2019, Governor J.B. Pritzker signed the Illinois Taxation and Budget Reform Commission Act into law. The law mandates the formation of a commission, which will be responsible for reviewing and making recommendations on changes to the Illinois tax system.
The primary focus of the commission will be to evaluate state taxes on income, capital gains, and retirement income. The commission will also consider issues related to the corporate income tax and estate tax.
One significant change to Illinois state tax law is the switch from a flat tax rate to a graduated tax rate, also known as a progressive tax system. This change is scheduled to take place on January 1, 2023.
Illinois residents will vote on a proposed constitutional amendment that would allow for the adoption of a graduated tax system on November 3, 2020. The amendment proposes new income tax rates for taxpayers with different income levels, with higher earners facing a higher tax rate.
If the amendment is passed, the following income tax rates will go into effect on January 1, 2021:
| Income | Tax Rate |
| -----------|-----------|
| $0-$10,000 | 4.75% |
| $10,001-$100,000 | 4.90% |
| $100,001-$250,000 | 4.95% |
| $250,001-$500,000 | 7.75% |
| $500,001+ | 7.99% |
If the amendment is not passed, the current flat tax rate of 4.95% will remain unchanged.
Final Words
Paying state income tax in Illinois is not a choice, but it is something that we all have to do. However, understanding the basics of Illinois state tax can help you save money and make your tax obligations easier to manage. Remember to keep track of your deductions, and to file your Illinois state tax return on time and efficiently.
Always stay informed about any changes in Illinois state tax laws to avoid any penalties, and talk with a tax professional or attorney for additional guidance as needed.
There are a number of taxes applicable to the state of Illinois, which includes a state sales tax, income tax, and other taxes.
Illinois state sales tax
The state sales tax is different depending on the locality where the sale takes place. There is a 5% state sales tax, with a minimum 1% city and .25% county sales tax. Some cities and counties impose higher taxes that can reach the maximum sales tax of 11.5%.
Illinois personal income tax
- Illinois uses a flat tax rate for calculating income tax for all residents of the state. The flat tax rate is 5%, however it will be decrease over the next 15 years back to 3%.
Illinois property taxes
- Fund local governments but approved by state
- Property tax rates vary depending on the county and type of the property
- The lowest residential property taxes are in Monroe county, with a nominal tax rate of 5.91%
- The highest residential property taxes are in Bond county, with a nominal tax rate of 9.16%
- Commercial property is taxed at the same rate in most counties, however some counties vary the effective tax rate of commercial properties.
Illinois special excise taxes
Taxes assessed on vehicles, alcohol, tobacco, gasoline and are in addition to federal excise taxes.
- Funds health programs and other related activities
- $0.98 tax on every pack of cigarettes
- $8.55 tax per gallon of spirits
- $1.39 tax per gallon of wine
- $0.23 tax per gallon of beer
Illinois inheritance tax
The Illinois estate and inheritance tax has just recently been re-entered into law after a hiatus in 2010. The state inheritance tax requires a lower threshold the federal tax, which exempts and estates from taxation until they are over $5 Million in total value. The Illinois inheritance tax will only exempt estates valued under $2 Million, but does allow estate planners to use a Qualified Terminable Interest Property Trust to defer some of that amount. The law is set to expire after 2012, so it is uncertain what the rate will be for years after.
Illinois payroll taxes
State Disability Insurance – None
State Unemployment Insurance – 0.70% - 8.4%
Local Taxes – Chicago requires $4 per month per employee.
Exemptions
Certain exemptions for
- Limited Military personnel and veteran exemptions
- Persons age 65 and older
- Disabled and blind resident tax credits
- Homeowner tax credits
- Qualified child tax credits
Taxable income
Gross income is defined as all income from whatever source derived, including but not limited to:
- Wages
- Salaries
- Commissions
- Stock Gains
- Dividends
- Royalties income
- Rental income
- Business income
- Inheritance
- Pensions
- Annuities
- Partnership/shareholder income
- Gain from sale of property
Corporate income tax
Illinois has a corporate tax rate of 9.5%, which will decrease to 7.3% in 2025.
Misc
Illinois has recently dramatically increased the flat income tax rate from 3% to 5% for the 2011 tax year. It has also dramatically increased the corporate tax rate from 7% to 9.5%. These increases are set to be temporary, as they will decrease a small amount for the next 15 years, until 2025.
Illinois requires a number of taxes for other activities, including utilities taxes, gambling and bingo taxes, aircraft use tax, hotel taxes, watercraft use taxes, automobile taxes, and a number of other licenses and registration fees required throughout the state.