## Illinois state income tax overview Every U.S. resident pays federal income tax — but state-level tax varies dramatically. Illinois's tax structure is summarized below. ### Illinois's framework - **Structure:** Flat tax (constitutional requirement) - **Top rate:** 4.95% ## Three tax structures explained **Graduated (progressive) income tax.** Multiple brackets. Higher income = higher marginal rate on the income above each bracket threshold. Used by most states. **Flat tax.** A single rate applied to all taxable income. Simpler than graduated but considered regressive by some. Used by about a dozen states. **No income tax.** Nine states have no individual income tax: **Alaska, Florida, Nevada, New Hampshire (wages only), South Dakota, Tennessee, Texas, Washington (wages only), and Wyoming.** These states typically lean on sales taxes, property taxes, severance taxes (oil/gas), or tourism taxes for revenue. ## Resident vs non-resident taxation **Resident.** You pay tax on ALL your income to your state of residency, no matter where earned. **Non-resident.** You pay tax to states where you EARN income (work, run a business, own rental property) — but only on income from those states. **Reciprocity agreements.** Some states have agreements (e.g., NJ-PA, MD-VA, IL-IA) where residents of one state working in the other pay only home-state tax. **Credit for taxes paid to another state.** If you pay tax to a state where you don't reside, your home state usually gives you a credit so you're not double-taxed. ## Common tax issues for individuals - **Moving mid-year** — both old and new state may want a piece, file part-year resident returns - **Remote work** — "convenience of the employer" rules in NY, NJ, AR, NE, PA, DE can tax remote workers based on the employer's location - **Selling property in another state** — capital gains may be taxed in both the property state AND your home state (with credit) - **Inheritance and estate tax** — most states don't have a state estate tax; some do; tax-friendly states are popular for retirement - **Social Security taxation** — some states tax SS, most don't - **Pension taxation** — varies wildly state to state ## Common tax issues for businesses - **Nexus** — the connection that makes you taxable in a state (physical presence, economic presence post-Wayfair, employees) - **Apportionment** — how multistate income is divided among states - **Combined vs separate reporting** — for unitary business groups - **Sales tax** — separate from income tax; obligations triggered by post-Wayfair (2018) economic nexus - **Pass-through entity tax (PTET) elections** — workaround for federal SALT cap ## State estate and inheritance tax (separate from income tax) **Estate tax** (paid by the estate) — currently in: CT, HI, IL, ME, MD, MA, MN, NY, OR, RI, VT, WA, DC. **Inheritance tax** (paid by the recipient) — currently in: KY, MD, NE, NJ, PA. (Maryland has both.) Federal estate tax exemption is ~$13.6M (2024) so most estates don't owe federal estate tax — but state thresholds are often much lower. ## When to talk to a tax professional - Multi-state income (live in one state, work in another) - Self-employment or business income - Significant capital gains or investment income - Recent move or planning to move - Inheritance - Audit notice from IRS or state - Cryptocurrency transactions - Foreign income or accounts (FBAR / FATCA) - Estate planning ## What you should do For routine W-2 returns with no complications, free file software (or human tax-prep services) usually does the job. For anything multi-state, business-related, or audit-related, hire a CPA or tax attorney. Most Illinois CPAs offer flat-fee returns and free initial consultations on planning issues. Tax attorneys are essential for audits, criminal tax matters, and substantial planning. --- *This guide is general information about Illinois tax law as of early 2026 and is not tax or legal advice. Tax rates, brackets, and rules change frequently — Illinois has reformed or scheduled reforms to its income tax in recent years. Talk to a licensed CPA or tax attorney about your specific situation.*