The Illinois State Income Tax for Individual Taxpayers
The Illinois income tax system is much simpler than in other states
Illinois swims against the tide a bit when it comes to state income taxes. It's one of just nine states that uses a flat tax system rather than a progressive system as of 2020. All taxpayers here pay the same rate regardless of income. Tax rates don't gradually increase as taxpayers earn more.
Illinois put the question of switching over to a progressive tax system to voters on the November 2020 ballot, but the measure was defeated.
The flat tax rate and provisions discussed here are applicable when you file your 2020 return in 2021.
How to Calculate Your Illinois Income Tax
The IRS introduced a new federal Form 1040 for the 2018 tax year, and it did so again for the 2019 and 2020 tax years. These lines apply specifically to the 2020 Form 1040.
Your AGI represents your income after adjustments are made to it, such as deductions you can claim for student loan interest you might have paid or for IRA contributions you might have made. It's your gross or overall income less these deductions.
Your AGI doesn't take any itemized or standard deductions into account, or tax credits that you might be also eligible for. These come later—other deductions are all eventually subtracted from your AGI to arrive at your taxable income, and credits whittle away at your tax bill to the IRS.
Your "Base Income"
Certain types of income are added back to your federal AGI on your Illinois return, and other types of income are subtracted. All this results in what Illinois calls your “base income.”
- Add-backs are sources of income that aren't included in your federal AGI but are taxable in Illinois, such as federally-exempt interest income.
- Subtractions are items that are taxed federally but are not in Illinois, such as retirement and Social Security income and contributions to 529 college savings plans.
This savings plan provision is one reason Illinois is considered one of the best states for college savers.
The state's Schedule M offers a full list of the additions and subtractions that are recognized by the state. The list changes periodically, so check back each year.
Itemized and standard deductions are not allowed in Illinois, which is consistent with the state's flat tax system. Available tax credits can reduce the amount of tax owed, however, and taxpayers are allowed to claim personal exemptions of $2,325 as of the 2020 tax year—the return you'd file in 2021. This amount is up from $2,275 in the 2019 tax year.
The Illinois Tax Rate
The state's personal income tax rate is 4.95% as of the 2020 tax year.
All residents and non-residents who receive income in the state must pay the state income tax. You must pay tax to Illinois on any income you earn there if you work there and live in any other state except Wisconsin, Iowa, Kentucky, or Michigan. Illinois has reciprocity with these four states so residents can cross state lines to work there without worrying about paying income tax to their non-resident state.
A tax credit is available for income taxes paid to another state if you live in Illinois but work in a state other than one of those with reciprocity.
Illinois Tax Credits
Illinois offers at least three credits in addition to the one that offsets taxes paid to other states.
The Property Tax Credit
The property tax credit is equal to 5% of Illinois property tax paid on your primary residence. You must own the residence, and you can't claim this credit if your federal AGI exceeds $250,000, or $500,000 if you're married and file a joint return. Complete Schedule ICR with your Illinois tax return to claim it.
The Education Expense Credit
You might qualify for a credit of up to $750 representing a portion of the expenses you paid for your dependent child or children to attend kindergarten through 12th grade at a public or nonpublic Illinois school. Your student must be under age 21, and both of you must have been Illinois residents at the time the expenses were paid. This is up from $500 in tax years 2016 and earlier.
Divorced or separated parents who aren't filing a joint tax return can't both claim the credit for the same expenses, but they can split them between their returns. They can each claim the credit for a portion of the expenses incurred.
The credit is limited to single taxpayers with federal AGIs of $250,000, or $500,000 if you're married and filing jointly. You must file Schedule ICR to claim this credit as well.
The Earned Income Credit
The earned income credit (EIC) is Illinois' only refundable tax credit. It's equal to 18% of the EIC amount received on your federal tax return. Income limits and other rules apply, but you'll qualify if you're eligible for the federal EIC offered by the IRS.
You must complete and file Schedule IL-E/EIC with your state tax return to claim the credit.
Filing Your Return
Form IL-1040, the Illinois individual income tax return, is due annually by April 15. The state began accepting 2019 returns in late January 2021, but it hasn't announced a firm date for 2020 returns in 2021. MyTax Illinois was not accepting new or saved tax returns as of Dec. 12, 2020.