The Illinois State Income Tax for Individual Taxpayers

The income tax system in Illinois is much simpler than in other states

Mature man working on income tax at home with laptop and phone

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Illinois swims against the tide a bit when it comes to state income taxes. It's one of just nine states that use a flat tax system rather than a progressive system as of tax year 2020. All taxpayers there pay the same rate regardless of income. Tax rates don't gradually increase as taxpayers earn more.

The state 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 starting point for your Illinois tax return is your federal adjusted gross income (AGI). You'll find your AGI on line 11 of your 2020 Form 1040.

The IRS introduced a revised 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 those 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 are subtracted, resulting 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 taxed 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 the state recognizes. The list changes periodically, so check back each year to ensure the items you claim are appropriate for that 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 filed 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 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 typically due each year by April 15, just like the federal Form 1040.

The deadline for filing the Illinois individual return was extended from April 15, 2021, to May 17, 2021. The new filing deadline matches the deadline for the federal individual tax return, which was also extended to May 17, 2021.

Frequently Asked Questions (FAQs)

Who is required to pay Illinois state income tax?

Anyone who receives income in Illinois must pay state income tax. The only exceptions relate to Wisconsin, Iowa, Kentucky, and Michigan. These states have reciprocity agreements with Illinois, which means:

  • Illinois residents who work in these four states must pay income taxes to Illinois rather than their work state.
  • Residents of these four states who work in Illinois only need to pay taxes in their state of residence, not to Illinois.

When does the state of Illinois start releasing income tax refunds?

Illinois doesn't provide specific time frames for issuing refunds, and it says that return processing has gotten slower due to efforts to curb identity theft and fraud. The state does emphasize that filing electronically and requesting a refund via direct deposit will be the fastest way to get your refund.

When did Illinois' state income tax increase to 4.95%?

Illinois' individual income tax increased from 3.75% to 4.95% on July 1, 2017.