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Illinois is one of a handful of states with a flat income tax — everyone pays the same percentage, regardless of how much they earn. This simplifies the calculation but means Illinois residents can't take advantage of lower marginal rates the way people in progressive tax states can. Here's what Illinois residents need to know about their state tax obligations.
The Flat Rate
Illinois currently imposes a 4.95% flat rate on individual net income. This applies to wages, salaries, self-employment income, interest, dividends, capital gains, and most other income. Unlike federal taxes, there's no graduated system — every dollar of income is taxed at the same rate.
Who Must File
Illinois residents must file an IL-1040 return if their Illinois net income exceeds the basic exemption amount. Part-year residents and nonresidents who earned income from Illinois sources — including working in the state or owning Illinois rental property — must also file.
What Illinois Exempts
Illinois does not tax most retirement income. Social Security benefits, pension income from Illinois public employee pension systems (teachers, state employees, etc.), and distributions from most retirement accounts are exempt from Illinois income tax. This makes Illinois more retirement-friendly than the flat rate might suggest.
Property Tax
Property taxes in Illinois are among the highest in the nation, particularly in the Chicago metro area (Cook County) and collar counties. Effective rates often exceed 2% of market value annually. Illinois has a general homestead exemption and a senior freeze exemption for qualifying older homeowners, but the overall property tax burden is significant.
Illinois vs. Neighboring States
Illinois residents living near state borders often compare their tax burden to neighboring states. Wisconsin, Indiana, and Iowa all have income taxes; Missouri and Kentucky do too. None of them have zero income tax, but some have lower effective rates. If you live near a border and work in another state, you need to track which state(s) have the right to tax your income and whether reciprocity agreements reduce your filing obligations.
City and Local Taxes
Chicago imposes various local taxes on top of state taxes, including a sales tax that brings the combined rate well above 10% in the city. Chicago also imposes specific taxes on streaming services, cloud storage, and other digital services that other jurisdictions don't tax.