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What is Illinois's income tax rate?

Illinois has a flat 4.95% income tax rate for all filers (individual and corporate) — regardless of income level. Illinois is one of about a dozen states with a flat rate rather than progressive brackets. The rate was raised from 3.75% to 4.95% in 2017. There have been proposals to switch to a graduated rate (rejected by voters in 2020). Each filer also gets a $2,425 personal exemption.

Does Illinois tax retirement income?

Illinois generally does not tax most retirement income — including Social Security, government pensions (state and local), military pensions, and distributions from 401k/IRA/403b if the taxpayer is 59½+. This makes Illinois surprisingly retirement-friendly despite its 4.95% rate. Investment income and wages are fully taxable.

What does Illinois tax that federal doesn't?

Illinois taxes 401k and 403b contributions (unlike federal pre-tax treatment). Illinois taxes some income that federal excludes. Illinois does not recognize federal deductions — no mortgage interest deduction, no charitable deduction, no student loan interest deduction for state purposes. Only the flat $2,425 personal exemption applies.

Is Chicago's local income tax significant?

Chicago employees pay an employers' expense tax and a personal property replacement tax applies to businesses, but there is no Chicago city income tax on wages withheld from employees' paychecks in 2024. This contrasts with NYC (3.876% local tax) and Yonkers (16.75% surcharge). Illinois's flat rate already applies statewide.