Illinois Individual State Income Tax

Understand Illinois' Flat Rate State Income Tax

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Does Illinois have a state income tax? It's a question asked with some frequency because the state doesn't use the progressive tax system in place elsewhere in the U.S. But make no mistake -- individuals are indeed taxed here. They're just taxed differently. 

Illinois is one of only eight states that have a flat tax system as of 2016. Everyone pays the same tax rate regardless of income. This simplified equation makes Illinois' tax returns much less complicated than those in other states.


Calculating Your Illinois State Income Tax 

The starting point for your Illinois return is your federal adjusted gross income or AGI. You'll find your AGI on line 37 of your Federal Form 1040. It's equivalent to your income after adjustments like student loan interest paid, IRA contributions and moving expenses, but before you take any itemized or standard deductions. 

Certain types of income are added back to your AGI on your Illinois return, while other types of income are subtracted, resulting in what Illinois calls your “base income.” 

  • Add-backs are sources of income that are not 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.

    Schedule M offers a full list of additions and subtractions recognized by the state. The list changes periodically, so make sure you check back each year. 

    Itemized and standard deductions are not allowed in Illinois, which is consistent with the state's flat tax ideology of simplification and fairness.

    Taxpayers are allowed exemptions for dependents to reduce taxable income, however, and available tax credits can reduce the amount of tax owed. 

    Illinois Income Tax Exemptions

    The state allows you to take a deduction for each exemption you claimed on your federal tax return. You'll also receive an additional exemption if you or your spouse is age 65 or older, legally blind or both, and if your total household income is less than $55,000 as of 2016. Income thresholds can change periodically to keep pace with inflation. Your total exemption amount is then deducted from your base income to arrive at your net income, and the tax rate is applied to net income.  

    Illinois Tax Rate

    All residents and non-residents who receive income in the state must pay the state income tax. If you work in Illinois but make your residence in Wisconsin, you must pay income tax to Illinois. The state tax rate is 3.75 percent as of 2016. 

    Illinois Tax Credits

    A credit is available for income taxes paid to another state if you live in Illinois but work elsewhere. Other available credits include: 

    • The property tax credit: This credit is equal to 5 percent of Illinois property tax paid on your primary residence. 
    • The education expense credit: If your dependent child or children attend kindergarten through 12th grade at a public or nonpublic Illinois school, you may qualify for the credit equal to a percentage of your qualified education expenses over $250 for the year. Your student must be under age 21, and both of you must have been Illinois residents at the time the expenses were paid. 
    • The earned income credit: The EIC is Illinois' only refundable credit. It's equal to 5 percent of the EIC amount received on your federal return.

    Filing your Return

    Form IL-1040, your Illinois individual income tax return, is due annually on April 15th.

    Illinois' State Income Tax Is Subject to Change

    Illinois lawmakers were debating a change from the flat tax system to a progressive tax system as of April 2016. The amendment goes on the ballot in November 2016 if passed by the House and Senate. If it passes, the change would take place in the 2017 tax year, so check back before you prepare your 2017 taxes.