State Taxes

Taxes in Illinois: State Tax Guide 2026

Updated 2026-03-10

Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.

Taxes in Illinois: State Tax Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Illinois combines a flat income tax with some of the highest property taxes in the nation, creating a unique tax landscape that hits homeowners especially hard. Understanding the full picture is essential for anyone living in or considering a move to Illinois.

Illinois Income Tax Rates (2026)

Illinois uses a flat income tax rate:

Tax RateApplies To
4.95%All taxable income

All filers pay the same rate regardless of income level. Illinois voters rejected a proposed graduated tax amendment in 2020, keeping the flat rate in place.

Illinois Standard Deduction and Exemptions

Illinois does not use a standard deduction system. Instead, it offers personal exemptions:

ExemptionAmount
Personal exemption~$2,625 per person
Dependent exemption~$2,625 per dependent

These reduce your taxable income directly.

Notable Illinois Tax Credits

  • Earned Income Tax Credit: 20% of the federal EITC amount
  • Property Tax Credit: 5% of property taxes paid on primary residence
  • Education Expense Credit: Up to ~$750 (25% of up to ~$3,000 in K-12 expenses)
  • Dependent Care Credit (K-12 Tuition): Available for qualifying education expenses
  • Angel Investment Credit: 25% of investments in qualifying Illinois businesses

Sales Tax

ComponentRate
State base rate6.25%
Average combined (state + local)8.83%
Chicago combined rate10.25%

Chicago has one of the highest combined sales tax rates of any major U.S. city.

Reduced rate: Groceries and medications are taxed at 1% (state) plus applicable local taxes. Most qualifying food and drug purchases are taxed at approximately 2%.

Property Tax

MetricAmount
Average effective rate2.08%
National average0.99%
Rank among states2nd highest

Illinois has the second-highest property tax rates in the nation, behind only New Jersey.

Example: A home valued at $250,000 pays approximately $5,200 per year in property taxes. In a state with the national average rate, the same home would pay approximately $2,475.

Why Are Illinois Property Taxes So High?

  • Heavy reliance on property taxes to fund schools and local government
  • Large number of overlapping taxing districts (school, park, library, fire, etc.)
  • Pension obligations at the local level
  • Cook County assessment practices creating additional complexity

Property Tax Relief

  • Homeowner exemption: Reduces assessed value by up to ~$10,000 in Cook County, ~$6,000 elsewhere
  • Senior citizen homestead exemption: Additional ~$8,000 (Cook County) or ~$5,000 (elsewhere) for 65+
  • Senior freeze: Freezes assessed value for qualifying seniors with household income under ~$65,000
  • General homestead exemption: Available to all owner-occupied primary residences

How Illinois Compares to National Averages

Tax TypeIllinoisNational Average
Income tax rate4.95% (flat)~5.0%
Effective rate (~$75K single)4.95%~3.5%
Sales tax (combined avg)8.83%6.6%
Property tax (effective)2.08%0.99%
Overall tax burden rankTop 5 highest—

Who Benefits from Living in Illinois

Illinois may work well for:

  • High earners — The flat rate means someone earning $500K pays the same 4.95% rate as someone earning $50K (unlike progressive-rate states where high earners face 10%+ rates)
  • Renters — Property tax is the landlord’s burden (though it affects rent)
  • Chicago professionals — High salaries in finance, tech, and healthcare can offset the tax burden
  • Those with qualifying K-12 expenses — The Education Expense Credit provides some relief

Illinois may be costly for:

  • Homeowners — Property taxes averaging 2.08% create a significant burden, especially in suburban Cook County and collar counties
  • Middle-income earners — The flat 4.95% rate provides no lower brackets for the first dollars earned
  • Retirees who own homes — While retirement income is exempt, high property taxes can erode savings
  • Small business owners — Combined income, property, and sales taxes create a heavy burden

Illinois-Specific Considerations

  • Retirement income is fully exempt — Pensions, 401(k)/IRA distributions, and Social Security are not taxed by Illinois
  • No state estate or inheritance tax below ~$4 million — Estates over ~$4 million face rates up to 16%
  • Reciprocal agreements — Illinois has reciprocal tax agreements with Iowa, Kentucky, Michigan, and Wisconsin (residents of these states working in Illinois are taxed only by their home state)
  • Cook County vs. rest of state — Tax administration, rates, and exemptions often differ between Cook County and other Illinois counties
  • Net operating loss limitations — Illinois limits the use of NOLs differently than federal rules

Key Takeaways

  • Illinois has a flat 4.95% income tax rate that applies equally to all income levels
  • Property taxes (averaging 2.08%) are the second highest in the nation and the biggest tax burden for homeowners
  • Sales tax in Chicago reaches 10.25%, one of the highest combined rates among major U.S. cities
  • Retirement income (pensions, 401(k), IRA, Social Security) is completely exempt from state income tax
  • The flat tax rate benefits high earners compared to progressive-rate states
  • Property tax exemptions and the senior freeze provide some relief for qualifying homeowners

Next Steps