How to File Illinois Individual Income Taxes for 2025 : A Complete Guide
Illinois uses one of the simplest state tax systems in the nation—a flat income tax rate of 4.95% that applies to all taxable income regardless of how much you earn. Unlike states with progressive tax brackets like California or New York, a taxpayer earning $50,000 pays the same 4.95% rate as someone earning $500,000. This flat-rate structure makes Illinois tax calculations straightforward, but the state offers limited deductions and credits compared to many other states.
The state completely exempts all retirement income from taxation, including distributions from 401(k)s, IRAs, pensions, and Social Security benefits. This makes Illinois one of the most tax-friendly states for retirees. However, Illinois imposes some of the highest property taxes in the nation, with an average rate of 1.95% of assessed home value. The state also has no reciprocal tax agreements with neighboring states except Iowa, Kentucky, Michigan, and Wisconsin.
If you're a full-time Illinois resident, recently moved to or from Illinois, work across state lines, approaching retirement, or have dependents, understanding Illinois's tax system helps you minimize your liability while staying fully compliant. This guide covers everything you must know for filing Illinois individual tax returns for 2025.
Who must file an Illinois State Tax Return?
You can file your return based on your residency status, income level, and filing status. You're an Illinois resident if Illinois is your domicile—your permanent home and the place you intend to return after temporary absences, regardless of where you may work or spend portions of the year.
Residents must file an Illinois tax return if:
- Your Illinois base income (adjusted gross income with certain modifications) exceeds your exemption allowance
- You want to claim a refund of Illinois taxes withheld from your wages
- You have income from sources other than wages (self-employment, investment income, rental income)
- Your gross income exceeds your standard exemption amount based on filing status
Illinois residents must report all income from all sources, including:
- Wages and salaries from any location (including other states)
- Self-employment income regardless of where earned
- Investment income (interest, dividends, capital gains)
- Retirement income (though most is exempt—see exclusions section)
- Rental income from properties anywhere
- Gambling and lottery winnings
- Income from partnerships, S corporations, and trusts
Part-Year Residents
You're a part-year resident if you moved into or out of Illinois during 2025. Part-year residents pay Illinois tax on:
- All income from all sources during the portion of the year you were an Illinois resident
- Only Illinois-source income during the portion you were a nonresident
How to determine residency period: Your Illinois residency begins or ends on the date you physically move combined with your intent to establish or abandon domicile. Document your move with:
- Moving company receipts
- Lease agreements or home purchase/sale documents
- New driver's license application date
- Vehicle registration dates
- Utility connection/disconnection dates
Nonresidents
You're a nonresident if you live outside Illinois and don't maintain Illinois as your domicile. Nonresidents must file if they earned Illinois-source income.
Illinois-source income includes:
- Wages for services physically performed in Illinois
- Self-employment income from business conducted in Illinois
- Rental income from Illinois property
- Income from pass-through entities doing business in Illinois
- Sale of Illinois real estate
Reciprocal Agreements
Illinois has reciprocal agreements with four neighboring states: Iowa, Kentucky, Michigan, and Wisconsin.
How reciprocity works:
- If you live in Illinois and work in Iowa, Kentucky, Michigan, or Wisconsin, you don't pay tax to the work state
- If you live in one of those four states and work in Illinois, you don't pay Illinois tax
- File Form IL-W-5-NR with your employer to stop withholding in the work state
- You only pay tax to your state of residence
Illinois has NO reciprocal agreements with Indiana or Missouri. If you live in Illinois and work in Indiana or Missouri, you'll pay tax to the work state and receive a credit from Illinois. If you live in Indiana or Missouri and work in Illinois, you'll pay Illinois tax and receive a credit from your home state.
Remote workers: If you live in Illinois and work remotely for an employer in another state (including those without reciprocal agreements), you generally only owe Illinois tax on your wages because you physically perform the work in Illinois.
2025 Illinois State Tax Rate
Illinois uses a flat income tax rate of 4.95% that applies to all taxable income regardless of your filing status or income level. Unlike progressive tax systems where higher income is taxed at higher rates, Illinois applies the same 4.95% rate to your entire taxable income after exemptions and deductions.
What you'll pay at different income levels:
- Income: $40,000 (after exemptions): Tax owed is $1,980 (4.95%)
- Income: $75,000 (after exemptions): Tax owed is $3,713 (4.95%)
- Income: $150,000 (after exemptions): Tax owed is $7,425 (4.95%)
- Income: $500,000 (after exemptions): Tax owed is $24,750 (4.95%)
The flat rate means your effective tax rate (excluding exemptions) is always 4.95%, regardless of whether you earn $30,000 or $3 million.
No Local Income Taxes
Illinois municipalities and counties do NOT impose local income taxes. Your only state-level income tax is the 4.95% Illinois rate. However, note that Illinois has some of the highest property taxes in the nation, with average effective rates around 1.95% of assessed home value.
Comparison to Neighboring States
Illinois's 4.95% flat rate compares to:
- Indiana: 3.05% flat rate (lower than Illinois)
- Wisconsin: Progressive rates from 3.54% to 7.65%
- Iowa: Progressive rates from 4.40% to 5.70%
- Missouri: Progressive rates from 0% to 4.95%
- Kentucky: 4.0% flat rate (lower than Illinois)
Illinois's rate is higher than some neighbors but lower than states with high progressive brackets.
Personal Exemptions for 2025
Illinois does NOT have a standard deduction like the federal system. Instead, Illinois provides personal exemptions that reduce your taxable income. Personal exemption amount is $2,850 per person (increased from $2,775 in 2024)
Who can claim personal exemptions:
- Yourself (one exemption)
- Your spouse if filing jointly (one additional exemption)
- Each qualifying dependent (one exemption per dependent)
Unlike New Jersey and many other states, Illinois's personal exemptions do NOT phase out as your income increases. All taxpayers, regardless of income level, can claim the full $2,850 exemption for themselves, their spouse, and each dependent.
Additional Exemptions
Age 65 or older exemption: Taxpayers age 65 or older receive an additional $1,000 exemption beyond the regular personal exemption. If both spouses are 65 or older on a joint return, each receives the additional $1,000 exemption.
Example—Married couple, both 65+, two dependent children:
- Personal exemptions: 4 × $2,850 = $11,400
- Age 65+ exemptions: 2 × $1,000 = $2,000
- Total exemptions: $13,400
Blind taxpayer exemption: Taxpayers who are legally blind receive an additional $1,000 exemption beyond the regular personal exemption.
Retirement Income Exclusions
Illinois generally exempts retirement income from state taxation by allowing those federally taxed portions to be subtracted when computing Illinois base income. This is one of Illinois's most significant tax benefits for retirees and older workers.
How the exemption works:
Illinois allows you to subtract qualifying retirement income from your federally adjusted gross income when calculating Illinois base income. The retirement income must have been included in your federal adjusted gross income and meet Illinois's definition of qualifying retirement income.
Qualifying retirement income includes:
- Social Security benefits
- Most pension and retirement plan distributions (401(k), 403(b), traditional IRAs, defined benefit pensions)
- Distributions from qualified employee retirement plans
- Government retirement benefits (federal, state, local government pensions)
- Military retirement pay
- Railroad retirement benefits
Important considerations:
- The exemption applies regardless of your age or total income level
- Certain retirement distributions may have exceptions or special reporting requirements
- Roth IRA distributions (already tax-free federally) don't require subtraction since they weren't included in federal AGI
- Early withdrawal penalties and certain non-qualified distributions may be treated differently
How to claim: Report your retirement income on your federal return as required, then claim the subtraction on Schedule M of Form IL-1040 to exclude the qualifying amounts from Illinois taxation.
Pro tip: Consult the Illinois Department of Revenue guidance and Schedule M instructions for specific exceptions, reporting details, and documentation requirements—certain retirement distributions may have unique treatment or require additional substantiation to qualify for the subtraction.
Social Security Benefits
Social Security retirement benefits are completely exempt from Illinois taxation, just as most retirement income is exempt. Railroad Retirement benefits receive the same treatment. While retirement income is exempt, Illinois DOES tax:
- Wages and salaries from continuing employment
- Self-employment income from ongoing business activities
- Investment income including interest, dividends, and capital gains
- Rental income from properties
- Business income from partnerships, S corporations, and sole proprietorships
Unemployment Compensation
Unemployment compensation included in your federal adjusted gross income (AGI) is taxable in Illinois. This means if you received unemployment benefits during the tax year, they will be subject to Illinois state income tax just as they are for federal purposes.
However, there is one important exception that railroad unemployment benefits are treated as non-taxable for Illinois purposes. If you received unemployment compensation under the federal Railroad Unemployment Insurance Act, these benefits are exempt from Illinois state taxation, even though they may be included in your federal AGI.
Deductions and Subtractions from Illinois Base Income
Illinois provides limited deductions compared to many states. The most significant are subtraction modifications that reduce your Illinois base income.
Retirement income subtraction:
- All qualifying retirement income (discussed above) is subtracted from federal AGI
- Includes 401(k), IRA, pension, and annuity distributions
- No dollar limit
Social Security and Railroad Retirement benefits:
- Fully subtracted from Illinois base income
- Both Social Security retirement and disability benefits exempt
Elementary and secondary school education expenses:
- Up to $500 subtraction per qualifying student
- Available for grades K-12
- Covers educational expenses including tuition, book fees, lab fees
- Does NOT require enrollment in private school—can be for public school fees as well
Contributions to Illinois 529 College Savings Plans:
- Up to $10,000 per year per contributor ($20,000 for married couples filing jointly)
- Must contribute to Illinois's Bright Start or Bright Directions 529 plans
- Subtraction available for contributions made during the year
- Earnings grow tax-deferred, withdrawals for education tax-free
Federally taxed Social Security benefits:
- If you paid federal tax on Social Security benefits (because your income exceeded federal thresholds), you can subtract that income for Illinois purposes
Adoption expenses:
- Subtraction for qualified adoption expenses for adopting a child under age 18 or a person with disabilities
- Maximum $15,000 subtraction per adoption
Military pay subtraction:
- Certain military pay is subtracted from Illinois base income for service members stationed outside Illinois
What Illinois Does NOT Allow
No itemized deduction option: Illinois does not allow you to claim itemized deductions like mortgage interest, property taxes, charitable contributions, or medical expenses. You cannot "itemize" on your Illinois return.
No medical expense deduction: Unlike New Jersey (2% floor) and federal returns (7.5% floor), Illinois provides no deduction for medical expenses.
No property tax deduction: While your federal return may allow property tax deductions, Illinois does not provide this deduction on the state return (though you claim exemptions instead).
No alimony deduction: Illinois follows federal law for post-2018 divorce agreements (alimony not deductible), and provides no deduction even for pre-2019 agreements.
Tax Credits Available to Illinois Individuals
Illinois provides several tax credits that reduce your tax liability dollar-for-dollar. Many credits were recently expanded or newly created.
Illinois Earned Income Tax Credit (EITC)
Illinois's EITC equals 20% of your federal Earned Income Tax Credit—one of the most valuable state tax credits available to working families.
Credit calculation:
- Calculate your federal Earned Income Tax Credit on your federal return
- Illinois credit = 20% of your federal EITC
- Fully refundable (you receive it even if it exceeds your tax liability)
2025 maximum Illinois EITC amounts (20% of federal):
- 3+ qualifying children: Maximum $1,609 (20% of $8,046 federal max)
- 2 qualifying children: Maximum $1,430 (20% of $7,152 federal max)
- 1 qualifying child: Maximum $866 (20% of $4,328 federal max)
- No qualifying children: Maximum $130 (20% of $649 federal max)
Eligibility requirements:
- Must qualify for the federal Earned Income Tax Credit
- Have earned income from employment or self-employment
- Meet federal income limits based on filing status and number of children
- Valid Social Security numbers for you, spouse, and qualifying children
- Cannot file married filing separately
- Investment income under $11,600 for 2025
Income limits for 2025 (federal EITC thresholds):
- 3+ children: $63,398 married filing jointly / $56,838 single or head of household
- 2 children: $59,187 married / $52,627 single or head of household
- 1 child: $53,120 married / $46,560 single or head of household
- No children: $24,210 married / $17,640 single or head of household (ages 25-64)
Important 2022 expansion: Illinois expanded EITC eligibility in 2022 to include:
- Workers ages 18-24 and 65+ without qualifying children (previously only 25-64)
- Workers without Social Security numbers who file with Individual Taxpayer Identification Numbers (ITINs)
How to claim: Complete Schedule IL-E/EIC and attach to your Form IL-1040. Enter your federal EITC amount, and the Illinois credit is calculated as 20% of that amount.
Illinois Child Tax Credit (NEW for 2024 and 2025)
Illinois's first-ever Child Tax Credit took effect for tax year 2024 and continues in 2025, providing valuable relief for families with young children.
Credit calculation for 2025:
- Computed as 40% of your Illinois Earned Income Credit (EITC) for tax year 2025
- The credit amount depends on your Illinois EITC eligibility and calculation
- Fully refundable for eligible families
Eligibility requirements:
- Must have at least one qualifying child under age 17 at the end of 2025
- Child must be your dependent for federal tax purposes
- Must qualify for the federal Child Tax Credit
- Must qualify for the Illinois Earned Income Credit
- Adjusted gross income must be under $40,000 (single) or $60,000 (married filing jointly)
How much you'll receive:
The Illinois Child Tax Credit equals 40% of your Illinois EITC. For example:
- If your Illinois EITC is $2,000, your Illinois Child Tax Credit would be $800 (40% × $2,000)
- If your Illinois EITC is $3,500, your Illinois Child Tax Credit would be $1,400 (40% × $3,500)
Income phase-out: The credit is reduced for taxpayers with AGI exceeding the thresholds and phases out completely at higher income levels, following the Illinois EITC phase-out structure.
How to claim: Complete Schedule IL-CTC (Child Tax Credit) and attach to your Form IL-1040. Provide information for each qualifying child including name, Social Security number, and date of birth. Consult Schedule IL-E/EIC instructions to calculate your Illinois EITC first, then compute your Child Tax Credit as 40% of that amount.
Pro tip: Since the Illinois Child Tax Credit is based on your Illinois EITC, ensure you accurately calculate your Illinois EITC first using Schedule IL-E/EIC—maximizing your EITC directly increases your Child Tax Credit by 40% of that amount.
Education Expense Credit
Illinois provides a credit for educational expenses paid for grades K-12.
Credit amount:
- 25% of qualifying expenses exceeding $250
- Maximum credit: $750 per family (not per student)
Qualifying expenses:
- Tuition and fees for grades K-12
- Book fees and lab fees
- Required course materials and supplies
- Expenses for public or private school attendance
Income limitation: Available only to taxpayers with Illinois base income under $500,000 (single) or $750,000 (married filing jointly).
How to claim: Complete Schedule ICR (Illinois Credits) and attach to Form IL-1040. Maintain receipts and documentation of educational expenses paid.
Note: You can claim both the education expense subtraction (up to $500 per student) AND this credit, but the same expenses cannot be used for both benefits.
Property Tax Credit
Illinois offers a limited property tax credit for lower-income homeowners and renters.
Property Tax Credit for homeowners:
Eligibility:
- Illinois base income must be $500,000 or less
- Must pay property taxes on your principal residence in Illinois
- Must have lived in the residence for at least six months during 2025
Credit calculation:
- 5% of Illinois property taxes paid on your principal residence
- Maximum credit: $750
Example: If you paid $10,000 in property taxes, your credit is $500 (5% of $10,000).
Property Tax Credit for renters:
Eligibility:
- Illinois base income must be $500,000 or less
- Must rent and occupy a principal residence in Illinois
- Must have paid rent during the year
Credit calculation:
- Based on formula considering rent paid and household income
- Generally smaller than homeowner credit
How to claim: Complete Schedule ICR and attach to Form IL-1040.
Illinois Gives Tax Credit (NEW for 2025)
Starting in 2025, Illinois created the "Illinois Gives" tax credit to incentivize charitable giving through community foundations.
Credit amount:
- 25% of eligible charitable contribution
- Maximum credit: $100,000 for individuals or $200,000 for married couples
Eligibility requirements:
- Must donate to endowment fund at qualifying National Standards community foundation
- Endowment must benefit Illinois charities or scholarships for Illinois students
- Must be incremental giving (above historical donation levels)
- Credits awarded on first-come, first-served basis (limited annual allocation)
How it works: Donate $400,000 to a qualifying endowment fund and receive a $100,000 tax credit (25%). Combined with federal charitable deduction, this significantly reduces the net cost of giving.
How to claim: The community foundation provides documentation. Complete appropriate tax credit form when filing.
Strategic note: This credit has limited annual state funding, so credits are awarded first-come, first-served. Plan donations early in the year to secure credit availability.
Strategic Planning for Illinois Taxpayers
Maximize Retirement Income Benefits
If you're approaching retirement, Illinois's complete exemption of retirement income makes it one of the best states for retirees. Unlike most states that tax retirement income or exempt only limited amounts, Illinois exempts all distributions regardless of age or income level.
Before age 59½, consider building substantial retirement account balances in states that tax distributions. Once you establish Illinois residency, take large distributions that would be heavily taxed in other states but are completely exempt in Illinois.
A retiree taking $200,000 annually in IRA and pension distributions pays $0 Illinois income tax on those distributions, compared to $13,000+ in states like California or New York.
Time Residency Changes Around Large Distributions
Part-year residents should carefully time large retirement distributions and capital gains around their move date.
If moving TO Illinois from a state that taxes retirement income, defer large retirement distributions until after establishing Illinois residency to avoid taxation by your former state.
If moving FROM Illinois to a state that taxes retirement income, accelerate retirement distributions while still an Illinois resident to benefit from the exemption before leaving.
Leverage 529 Contribution Subtraction
Illinois allows up to $10,000 per contributor ($20,000 for married couples) in annual subtractions for Bright Start or Bright Directions 529 contributions.
At the 4.95% rate, maximizing the $10,000 subtraction saves $495 annually per contributor. Married couples saving $20,000 reduce their tax by $990 immediately, plus earnings grow tax-deferred and qualified withdrawals are tax-free.
Grandparents can each contribute $10,000 to separate accounts for grandchildren, each receiving their own subtraction. A married couple with four grandchildren can contribute $10,000 to each grandchild's account ($40,000 total) for a $1,980 annual state tax savings.
Claim All Available Credits
Many Illinois taxpayers overlook available credits. Ensure you claim:
- Illinois EITC (20% of federal) if you have earned income under limits
- Illinois Child Tax Credit ($300 per child) if you have children under 17 and income under $40,000/$60,000
- Education expense credit (25% of K-12 expenses over $250)
- Property tax credit (5% of property taxes paid, up to $750)
A family with two children under 17, $35,000 in earned income, and $8,000 in property taxes paid could receive:
- Illinois EITC: ~$750 (estimated based on federal credit)
- Illinois Child Tax Credit: $600 ($300 × 2 children)
- Property tax credit: $400 (5% of $8,000)
- Total credits: $1,750
Optimize Multi-State Taxation
For Illinois residents working in Indiana or Missouri: You'll pay tax to the work state and claim a credit from Illinois. Ensure proper withholding for the work state and Illinois to avoid year-end surprises. You'll generally pay close to the higher of the two states' rates.
For Illinois residents working in reciprocal states (Iowa, Kentucky, Michigan, Wisconsin): File Form IL-W-5-NR with your employer to stop withholding in the work state. You only file and pay Illinois, simplifying compliance.
For remote workers: If you physically work from Illinois for an out-of-state employer, you generally only owe Illinois tax, not the employer's state tax. Ensure your employer isn't incorrectly withholding for their state.
Filing Requirements and Deadlines
April 15, 2026: Deadline to file your 2025 Illinois income tax return and pay any tax owed (moves to next business day if April 15 falls on weekend/holiday)
October 15, 2026: Automatic six-month extension deadline if you file Form IL-505-I (Automatic Extension Payment) and pay at least 90% of your tax liability by April 15
Quarterly estimated tax payment dates for 2025:
- First quarter: April 15, 2025
- Second quarter: June 16, 2025
- Third quarter: September 15, 2025
- Fourth quarter: January 15, 2026
Forms You'll Need to File
Primary forms:
- Residents: Form IL-1040 (Individual Income Tax Return)
- Part-year residents: Form IL-1040 with Schedule NR (Nonresident and Part-Year Resident Computation of Illinois Tax)
- Nonresidents: Form IL-1040 with Schedule NR
Common supporting schedules:
- Schedule IL-E/EIC: Earned Income Credit
- Schedule IL-CTC: Child Tax Credit
- Schedule ICR: Illinois Credits (property tax credit, education expense credit)
- Schedule CR: Credit for Tax Paid to Other States
- Schedule NR: Nonresident and Part-Year Resident Computation
- Schedule IL-WIT: Illinois Withholding Income Tax
- Form IL-505-I: Automatic Extension Payment
How NSKT Global Can Help with Your Illinois Taxes
NSKT Global specializes in Illinois state tax planning for individuals, helping you minimize your tax burden while ensuring full compliance.
Illinois tax return preparation: We prepare Form IL-1040 for residents with multiple income sources, part-year resident returns with proper income allocation using Schedule NR, multi-state returns for those working across state lines, and quarterly estimated tax calculations to prevent underpayment penalties.
Residency planning and relocation strategies: We provide domicile establishment strategies with comprehensive documentation for relocations to or from Illinois, timing strategies for large income items around residency changes, analysis of multi-state tax obligations for part-year residents, and documentation systems proving residency status for audit protection.
Retirement tax planning: We maximize Illinois's retirement income exemption through strategic distribution planning, coordinate retirement account distributions with residency changes to minimize lifetime tax burden, plan Roth conversion strategies in other states before establishing Illinois residency, and structure retirement income to take full advantage of Illinois's exemptions.
