Tax in Illinois: a complete guide
If you’re hoping to understand the tax system of Illinois better, from income to sales to retirement, discover all there is to know in this comprehensive Illinois tax guide.
Illinois is considered one of the most expensive places to live in the US from a tax perspective (though certain retirement benefits and exemptions are at play and especially valuable for those who want to stay in the Midwest area).
Recent research revealed that the average Illinois family pays roughly $14,778 in annual taxes, compared to just $3,438 in Wyoming. This is a difference of over $10,000 every year. If you’re considering life in Illinois, it’s essential to understand all the costs involved.
Illinois income tax
In Illinois, state income tax for individuals sits at a flat rate of 4.95 percent. This means that whether you’re earning $30,000 or $300,000 a year, you pay 4.95 percent of your earned income towards state tax.
On top of this, you’ll need to cover your federal income tax responsibilities. For federal purposes, you’ll fall into one of seven brackets:
| Federal income tax rate | A single person OR a married person/ registered domestic partner filing separately | A married person/ registered domestic partner filing jointly OR a qualifying widower | A head of household |
|---|---|---|---|
| Federal income tax rate | A single person OR a married person/ registered domestic partner filing separately | A married person/ registered domestic partner filing jointly OR a qualifying widower | A head of household |
| Ten percent | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 |
| 12 percent | $11,001 to $44,725 | $22,001 to $89,450 | $15,701 to $59,850 |
| 22 percent | $44,726 to $95,375 | $89,451 to $190,750 | $59,851 to $95,350 |
| 24 percent | $95,376 to $182,100 | $190,751 to $364,200 | $95,351 to $182,100 |
| 32 percent | $182,101 to $231,250 | $364,201 to $462,500 | $182,101 to $231,250 |
| 35 percent | $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $578,100 |
| 37 percent | $578,126 or more for single people, $346,876 or more for married people/domestic partners filing separately | $693,751 or more | $578,101 or more |
Illinois also has a corporate income tax charged at a flat rate of 9.5 percent, which might affect you if you’re a business owner. Plus, it’s worth noting that if you’re working in Illinois but living in another state, you’ll still need to pay income tax to Illinois unless you live in any of the following states:
Wisconsin
Iowa
Kentucky
Michigan
Illinois sales tax
In most cases, Illinois’ state sales and use tax rate is 6.25 percent, with Illinois residents paying up to 11 percent when some local districts and counties add extra taxes.
Certain groups, including government agencies, non-profit organizations, and merchants purchasing goods for resale, are exempt from sales tax under Illinois law. Certain items are also exempt, with a special lower rate of one percent sales and use tax applied to qualifying food, drugs, and medical appliances.
One “food” that doesn’t qualify for an exemption is alcohol, which is taxed differently between types. Beer is taxed at $0.23 per gallon, wine at $1.39 per gallon, and liquor at $8.55 per gallon.
Illinois property tax
The average price of a home in Illinois is $272,250, but it’s vital that you don’t take this as your final figure.
Many fees apply to a property purchase in any state, and in Illinois specifically, things can get slightly confusing – as there’s no set rate for property tax.
Your property tax rate will depend on your home's “equalized assessed value” and the demands of your local taxing district. Usually, it will sit somewhere around two percent, almost double the national average.
This means that the typical homeowner in Illinois pays around $4,800 a year in property taxes. As for why property tax is so high, it primarily comes down to the state's over 8,000 different taxing authorities, from city governments to school districts to local community projects.
If you’re still looking to buy in Illinois but you’d like to reduce your tax liability where possible, pay attention to the average rates and tax payments in the areas you’re exploring.
Illinois estate tax
The Illinois estate tax threshold is $4 million, significantly lower than the federal estate tax threshold of almost $13 million. Below this $4 million figure, inheritance tax, and estate tax at the state level don’t apply. Above this number, taxable amounts and rates up to $1.54 million are as follows in Illinois:
| Taxable estate | Estate tax amount |
|---|---|
| Taxable estate | Estate tax amount |
| $40,000-$90,000 | 0.8 percent of the taxable estate |
| $40,000-$90,000 | $400, and 1.6 percent of taxable excess |
| $90,001-$140,000 | $1,200, and 2.4 percent of taxable excess |
| $140,001-$240,000 | $3,600, and 3.2 percent of taxable excess |
| $240,001-$440,000 | $10,000, and 4.0 percent of taxable excess |
| $440,001-$640,000 | $18,000, and 4.8 percent of taxable excess |
| $640,001-$840,000 | $27,600, and 5.6 percent of taxable excess |
| $840,001-$1,040,000 | $38,800, and 6.4 percent of taxable excess |
| $1,040,001-$1,540,000 | $70,800, and 7.2 percent of taxable excess |
Illinois motor tax
In Illinois, there’s a 7.25 percent sales tax rate on all vehicle purchases, with county and district local sales taxes on top of this usually ranging from 0.25 percent to 1.25 percent.
You’ll also likely need to account for the taxed cost of fuel if you’re hoping to own and run a vehicle in Illinois, which is broken down as follows:
Gasoline is taxed at $0.423 per gallon.
Undyed diesel is taxed at $0.498 per gallon.
Illinois retirement tax
Though Illinois tax rates are generally high, almost all your retirement income will be exempt from taxation in the state.
Suppose you’re trying to determine the best and worst states to retire in. In that case, you’ll find you do surprisingly well in this midwestern state, with Social Security, pension income, and income from retirement savings accounts all remaining untaxed. Plus, if you’re over 65, you could also be entitled to reductions or exemptions in areas like property tax. You can also check out the complete guide to retirement in Illinois here.
Whatever your age, there’s a lot to appreciate about life in Illinois, and you should now have a clearer idea of whether this state might be affordable to/suitable for you in terms of applicable tax liabilities. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.