Illinois Tax Guide 2026

Flat rate locked in the constitution

Article IX §3(a) of the Illinois Constitution requires that income tax be 'measured at a non-graduated rate' — meaning a single flat rate, no brackets. A 2020 constitutional amendment to allow a graduated rate (Fair Tax) was defeated by voters 53–47. The flat structure is therefore legally entrenched until another constitutional vote. Current rate: 4.95% personal, 7% corporate (plus PPRT).

Personal Property Replacement Tax (PPRT)

Despite the name (a holdover from the abolished tangible personal property tax), PPRT is an income tax on business entities, distributed to local taxing districts that lost revenue when the personal property tax was repealed in 1979. Rates: • C-corporations: 2.5% of Illinois net income (on top of 7% corporate income tax) • S-corporations, partnerships, trusts: 1.5% of Illinois net income • Sole proprietorships: 0% (no PPRT) This means electing S-corp in Illinois costs 1.5% of the entity's net income vs the 0% sole-proprietor rate — a meaningful drag on the LLC-to-S-corp election decision. Combine with 1.5% in payroll tax savings on distributions, and the IL S-corp election arithmetic is more delicate than in no-PPRT states.

PTET (Illinois PTE election)

Under 35 ILCS 5/201(p), eligible S-corps and partnerships may elect to pay a 4.95% entity-level tax on Illinois net income. Owners receive a refundable credit on their personal IL returns equal to their share of the PTET. The election is annual, due by the original return deadline. For IL residents, the PTET is a wash at the state level (PTET tax paid = personal credit received). The federal benefit comes from the entity-level federal deduction bypassing the $10k SALT cap (TCJA, retained in OBBBA SALT-cap modifications).

Sales tax

State rate 6.25% (1% of which goes to local governments). Counties, municipalities, and special districts add their own. Notable combined rates: • Chicago: 10.25% (6.25% state + 1.25% city + 1.75% Cook County + 1.0% RTA) • Cook County (outside Chicago): typically 8%–10% • Most downstate: 6.5%–8% Illinois taxes grocery food at 1% (reduced rate) — many states exempt; some downstate municipalities are eliminating their share. Economic nexus: $100,000 OR 200 transactions.

Local income tax

Illinois does NOT permit municipal income tax. Chicago has no city income tax. The only local-level income revenue is property tax. Some cities impose food-and-beverage taxes, amusement taxes (Chicago's 9% Amusement Tax notably includes streaming services), and hotel taxes.

Property tax — among the worst in the country

Statewide average effective rate ~2.05%, second only to New Jersey. Cook County, DuPage, Lake, and the collar counties carry the highest absolute bills. School districts dominate the bill (60%+). The cap on annual increases (PTELL) applies in non-home-rule counties but not Chicago or many large municipalities — meaning home values appreciate but tax bills can outpace. Homestead exemption: $6,000 off equalised assessed value statewide ($10,000 in Cook County). Senior exemption +$8,000 (Cook). Disabled veterans: up to full exemption.

Estate tax

Illinois imposes its own estate tax with a $4,000,000 exemption (35 ILCS 405). No portability between spouses (unlike federal). Top rate 16%. Estates between $4M and ~$11.7M face the 'estate tax cliff' — small overages trigger disproportionate tax because the tax computation uses the federal pre-EGTRRA scheme. Practical estate planning at the $4M threshold is sharper in Illinois than in most states.

Self-employed considerations

Illinois uses the common-law test for worker classification, not the strict ABC test. State income tax filing is straightforward — flat rate, single bracket math. LLC annual report: $75. S-corp/LLC entity formation: $150 (Articles of Organization). Chicago licensing: most business types require a Business License from the Department of Business Affairs and Consumer Protection (BACP). Tradespeople (electricians, plumbers, contractors) require state and city licensure separately.

Worked example: Sarah Kowalski, IT consulting LLC, S-corp electing (Chicago, single, 2026)

Sarah's S-corp nets $145,000. She pays $85,000 reasonable comp, distributes $60,000. Illinois resident.

Federal: skip (~$22k income + $13k FICA on owner wages, partly offset by half-SE / employer-share deduction). Illinois layer: S-corp PPRT: 1.5% × 145,000 = 2,175 Sarah's IL taxable income: 85,000 W-2 + 60,000 K-1 = 145,000 Less personal exemption: 2,775 IL TI: 142,225 IL personal tax: 4.95% × 142,225 = 7,040 Total state burden: 2,175 + 7,040 = 9,215 If S-corp elects PTET (35 ILCS 5/201(p)): PTET tax: 4.95% × 145,000 = 7,177 paid at entity level (federally deductible — bypasses SALT cap) Sarah's personal IL liability offset by PTET credit; net IL personal tax: 0 PPRT still owed: 2,175 Total state burden: 9,352 (slightly higher absolute) BUT federal SALT-cap benefit: ~$1,500–$2,400 saved depending on her bracket → net federal-after-state better with PTET election.

Statute references

• Constitutional requirement for flat rate — Ill. Const. Art. IX §3(a)
• Personal income tax — 35 ILCS 5/201(b)
• Personal Property Replacement Tax — 35 ILCS 5/201(c), (d)
• PTET election — 35 ILCS 5/201(p)
• Sales and use tax — 35 ILCS 120 (Retailers' Occupation Tax)
• Illinois estate tax — 35 ILCS 405

Related pages

• State Tax Comparison →
• PTET Analyzer →
• LLC vs S-Corp Guide →