Learn About Illinois State Taxes
Illinois cities have some of the highest sales taxes coming in the country with Chicago even charging a special tax on soda. Illinois cities have also been ranked as having the highest cigarette taxes in the country. However, cities and counties offer a long list of property tax exemptions and the state income tax is a low flat rate of only 3 percent.
Illinois Property Tax
The state of Illinois receives no revenue from property taxes – all of the money goes to local municipalities. According to the Illinois Department of Revenue, 62% of local property tax revenue goes to school districts for education.
In Illinois, there is a one-year lag in the property tax cycle. The property is assessed on January 1st, and property tax is paid on that assessment in the following year (taxes on a 2010 assessment would be paid in 2011). The property is assessed at 33.33% of its market value. Cook County (Chicago’s county) uses a computer model that determines value based on comparable home sales over a five-year period and limits the valuation of single family homes to 16% of market value. Farmland in Illinois is assessed based on its ability to produce income (also known as agricultural value).
Property Tax Exemptions
Illinois has several exemptions that reduce your property tax by reducing the assessed value of your home. The General Homestead Exemption can be claimed for up to $5,000 for single-family homes that are the primary residence of the owner. A lessee with a legal interest in the property and an obligation to pay property taxes can also claim this exemption.
The Long-Time Occupant Homestead Exemption is available to Cook County residents who have lived in their home as their primary residence for ten years or more (five years if the home was purchased by the government or non-profit assistance). To qualify for this exemption, your income must be less than $100,000 a year. The maximum exemption amount is $10,000.
There are also exemptions for senior citizens, a $2,000 exemption for the disabled, an exemption for disabled veterans of up to $70,000, and an exemption for home improvements after a catastrophic event. Besides exemptions, there is also a limit on the amount property taxes can increase over the prior year, this is known as the Property Tax Extension Limitation Law (or "tax caps”). This law limits the increase in total property taxes on existing property to a 5% increase or the increase in the national Consumer Price Index (a measure of inflation) for the year preceding the tax year, whichever is less.
If more revenue is needed by taxing districts, this limitation can be increased with voter approval.
Illinois Income Tax
Illinois income tax is levied at a flat 3% rate regardless of income level. A deduction of $2,000 is allowed for each exemption claimed on your federal return. You can also receive an additional $1,000 exemption if you or your spouse is 65 or older, legally blind, or both. There are no deductions allowed, as this is a flat tax system, but there are credits available for taxes paid to another state, property taxes paid, and expenses paid for your child’s school. A refundable Earned Income Credit (EIC) is available for those who received the federal EIC credit.
The total amount of the Illinois Earned Income Credit is 5% of the credit on your federal return. Illinois income tax returns (Form IL-1040) are due annually on April 15th.
Additional Illinois State Taxes
- Sales Tax: The state sales tax rate is 6.25%. However, prescription and non-prescriptions drugs, medical equipment, and qualifying food purchases are only taxed at 1%. Localities can add their own sales taxes, which can bring sales tax rates up to 11.5% in some areas.
- Gasoline Tax: 39 cents per gallon for unleaded. Chicago and Cook County are authorized to add additional taxes of 5 cents and 6 cents. Diesel is taxed at 41.7 cents per gallon.
- Cigarette Tax: 98 cents per pack of 20. Counties and cities can charge extra taxes, with Cook County adding $2.00. According to The Campaign for Tobacco-Free Kids, Chicago has the second highest cigarette taxes in the country at $3.66 per pack. Three other Cook County cities made the top ten: Evanston ranked third at $3.48 per pack; Cicero ranked sixth at $3.14 per pack, and Rosemont ranked seventh at $3.03 per pack.
- Chicago soft drink tax: Retailers pay a 3% tax on their gross soft drink sales in Chicago, which is usually charged to the consumer when they purchase a soda or other drink containing less than 50% juice (milk is not included). Businesses that supply fountain drink syrup to retailers are also required to pay a 9% tax on their gross syrup sales.