Illinois is an outlier when it comes to state income taxes. It's one of nine states that use a flat tax system rather than a progressive system. 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, and the flat tax remains.
How To Calculate Your Illinois Income Tax
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. The 2021 form continues to have AGI on line 11.
Your AGI represents your income after adjustments are made to it. Adjustments might be for things like student loan interest you have paid or for IRA contributions you made. It's your gross, or overall, income minus these deductions.
Your AGI doesn't account for any itemized or standard deductions or tax credits that you might also be eligible for. These come later. Other deductions are all eventually subtracted from your AGI to arrive at your taxable income, while 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. 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 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 that 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. Taxpayers are allowed to claim personal exemptions of $2,375 as of the 2021 tax year—the return filed in 2022. That amount is an increase from $2,325 in the 2020 tax year.
The Illinois Tax Rate
The state's personal income tax rate is 4.95% for the 2021 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 the Illinois property tax paid on your primary residence. You must own the residence. 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. This credit is for 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.
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.
Frequently Asked Questions (FAQs)
Who must 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. Those states have reciprocity agreements with Illinois, which means:
- Illinois residents who work in these four states must pay income tax to Illinois rather than their work state.
- Residents of these four states who work in Illinois only need to pay tax 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 return processing has gotten slower due to the state's 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.