State & Local Taxes
Illinois State Income Tax: 2026 Flat Rate Explained
Illinois state income tax is a flat 4.95% on net income, the same rate for every individual regardless of how much they earn. There are no brackets. For 2026, each personal exemption is $2,925, retirement income (pensions, 401(k)s, IRAs, and Social Security) is not taxed, and most businesses also owe a separate Personal Property Replacement Tax. The flat structure is written into the Illinois Constitution, and voters rejected a 2020 amendment that would have allowed graduated rates.
What is the Illinois income tax rate in 2026?
The Illinois individual income tax rate is a flat 4.95% for 2026, unchanged since July 1, 2017. Every resident and nonresident with Illinois taxable income pays the same rate, whether their income is $30,000 or $3 million. Illinois does not use tax brackets the way the federal system or graduated states like the California state income tax and the New York state income tax do.
The 4.95% rate applies to net income after subtracting personal exemptions and certain subtractions on Form IL-1040. The rate has moved before: it was a temporary 5% from 2011 to 2014, dropped to 3.75% in 2015, then settled at 4.95% in mid-2017. A flat rate is required by Article IX, Section 3 of the Illinois Constitution, which is why changing it takes more than an ordinary law.
The personal exemption for 2026
Illinois does not offer a standard deduction. Instead, it uses a personal exemption allowance, set at $2,925 per person for tax year 2026, up from $2,850 in 2025. You claim one exemption for yourself, one for a spouse on a joint return, and one for each dependent.
The exemption reduces the income taxed at 4.95%. A married couple filing jointly with two children may claim four exemptions, or $11,700 in 2026, lowering taxable income before the flat rate applies. Taxpayers who were 65 or older and/or legally blind may claim an additional $1,000 exemption for each condition that applies.
The exemption phases out at higher incomes. Taxpayers filing single, head of household, married filing separately, or widowed receive no exemption allowance if federal adjusted gross income exceeds $250,000. For married filing jointly, the cutoff is $500,000 in federal AGI. Above those thresholds, the full 4.95% can apply to income with no exemption offset.
| Item | 2025 | 2026 |
|---|---|---|
| Flat income tax rate | 4.95% | 4.95% |
| Personal exemption (per person) | $2,850 | $2,925 |
| Additional exemption (age 65+ or blind) | $1,000 | $1,000 |
| Exemption phaseout, single/HOH/MFS/widowed | AGI > $250,000 | AGI > $250,000 |
| Exemption phaseout, married filing jointly | AGI > $500,000 | AGI > $500,000 |
How Illinois taxes retirement income
Illinois does not tax most retirement income, one of the most valuable features of its tax code for retirees. Qualified pension distributions, 401(k) and 403(b) withdrawals, traditional and Roth IRA distributions, Social Security benefits, railroad retirement, and government pensions (including military) are subtracted from taxable income on Schedule M.
This exclusion means a retiree drawing $80,000 from a pension and Social Security may owe no Illinois income tax on that money, even though it is fully or partly taxable at the federal level. The subtraction generally applies to income reported on federal Form 1099-R from a qualified plan, plus Social Security benefits included in federal AGI.
The exclusion does not cover everything. Investment income, such as interest, dividends, and capital gains, remains taxable at 4.95% regardless of age. Early distributions and nonqualified deferred compensation can also fall outside the exclusion, so the treatment often depends on the source and the plan type.
The failed graduated-tax amendment
Illinois voters rejected a constitutional amendment on November 3, 2020, that would have allowed graduated income tax rates. The measure, promoted as the “Fair Tax,” failed with about 55% voting no and 45% voting yes. To pass, it needed 60% of votes cast on the question or a majority of all ballots cast in the election.
The amendment would have removed the flat-tax requirement from the Illinois Constitution, letting lawmakers set higher rates on higher incomes, similar to the federal system. Governor J.B. Pritzker’s committee spent roughly $58 million backing it, while opposition led by Citadel founder Ken Griffin spent more than $53 million against it.
Because the amendment failed, the flat rate remains constitutionally locked. Any future move to graduated rates would require another voter-approved amendment, not just a legislative vote. The 4.95% flat rate has stayed in place in every year since.
Replacement tax on Illinois businesses
Illinois charges a Personal Property Replacement Tax (PPRT) on business income, layered on top of or in place of the individual rate depending on entity type. The tax replaces revenue local governments lost when Illinois abolished personal property taxes on businesses in 1979, and the state distributes the proceeds to local units.
C corporations pay a 7% income tax plus a 2.5% replacement tax, for a combined 9.5% on net Illinois income. Partnerships and S corporations pay the 1.5% replacement tax but generally owe no entity-level income tax, since that income passes through to owners taxed at 4.95%. Trusts pay 4.95% income tax plus 1.5% replacement tax, while estates pay 4.95% with no replacement tax. Public utilities pay a 0.8% tax on invested capital.
| Entity type | Income tax | Replacement tax | Combined |
|---|---|---|---|
| C corporation | 7% | 2.5% | 9.5% |
| S corporation | none (entity level) | 1.5% | 1.5% |
| Partnership | none (entity level) | 1.5% | 1.5% |
| Trust | 4.95% | 1.5% | 6.45% |
| Estate | 4.95% | none | 4.95% |
Pass-through entities may also elect to pay Illinois pass-through entity (PTE) tax at 4.95% at the entity level, a workaround for the federal SALT deduction cap. The election shifts the state tax to the entity, which can preserve a federal deduction that owners might otherwise lose. See our guide to the pass-through entity tax (PTET) election for how the mechanics work across states.
Residency and who has to file
Illinois taxes residents on all income and nonresidents on income earned from Illinois sources. You are generally an Illinois resident if the state is your permanent home or you spend enough of the year there, and part-year residents file for the period they lived in state. Everyone with an Illinois filing obligation uses Form IL-1040, which sits on top of the federal return. The way the two systems interact is covered in our explainer on state vs federal income tax, and residents weighing a move should compare the states with no income tax.
Residents report income from every source, then may claim a credit for taxes paid to other states to avoid double taxation. Nonresidents and part-year residents file Schedule NR to allocate only the income tied to Illinois, such as wages earned in the state or income from Illinois property and businesses.
Illinois has reciprocal agreements with Iowa, Kentucky, Michigan, and Wisconsin. A resident of one of those states who works in Illinois generally pays income tax only to their home state on those wages, and can file Form IL-W-5-NR with an Illinois employer to stop Illinois withholding.
FAQ
Does Illinois have a flat income tax?
Yes. Illinois applies a single flat rate of 4.95% to all taxable income, with no brackets, for 2026. The flat structure is required by the Illinois Constitution. Voters rejected a 2020 amendment that would have allowed graduated rates, so changing to a bracketed system would require another constitutional amendment approved at the ballot box.
What is the Illinois personal exemption for 2026?
The Illinois personal exemption is $2,925 per person for tax year 2026, up from $2,850 in 2025. You claim one for yourself, one for a spouse on a joint return, and one per dependent. Taxpayers 65 or older and/or legally blind may add $1,000 each. The exemption phases out entirely above $250,000 in federal AGI ($500,000 if married filing jointly).
Does Illinois tax retirement income?
Illinois does not tax most retirement income. Qualified pensions, 401(k) and IRA distributions, Social Security, railroad retirement, and government and military pensions are subtracted on Schedule M and generally escape the 4.95% rate. Investment income such as interest, dividends, and capital gains remains taxable at any age, and some early or nonqualified distributions may not qualify.
Does Illinois tax Social Security benefits?
No. Illinois does not tax Social Security benefits. Any Social Security income included in your federal adjusted gross income can be subtracted on the Illinois return, so it is not subject to the 4.95% flat rate. This treatment applies regardless of your total income or age, unlike the federal rules that can tax up to 85% of benefits.
What is the Illinois replacement tax?
The Personal Property Replacement Tax is a state tax on business income distributed to local governments. C corporations pay 2.5% on top of the 7% corporate income tax. Partnerships, S corporations, and trusts pay 1.5%. It replaced revenue lost when Illinois ended local personal property taxes on businesses in 1979, and it applies separately from the individual income tax.
How much is Illinois corporate income tax?
Illinois C corporations face a combined 9.5% on net Illinois income: a 7% corporate income tax plus the 2.5% Personal Property Replacement Tax. S corporations and partnerships generally pay only the 1.5% replacement tax at the entity level, because their income passes through to owners taxed at the 4.95% individual rate, though they may elect entity-level PTE tax.
Do I have to file an Illinois return if I live in another state?
It depends. Nonresidents may need to file if they earned income from Illinois sources, such as wages for work performed in the state, reported on Schedule NR. Residents of Iowa, Kentucky, Michigan, and Wisconsin are covered by reciprocal agreements and generally pay tax only to their home state on Illinois wages, filing Form IL-W-5-NR to stop Illinois withholding.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.