Illinois Tax Rates 2026

Illinois is one of only three states (with Pennsylvania and Mississippi) that fully exempts all qualifying retirement income from state tax — pensions, 401(k) distributions, IRA withdrawals, Social Security, military retirement, and Railroad Retirement. The state's headline rate is a flat 4.95% on wages and most other income, but for retirees drawing primarily from these sources, Illinois effectively becomes a 0% state-income-tax state.

IL DOR Publication 120, Retirement Income; 35 ILCS 5/203(a)(2)(F). Subtraction claimed via IL-1040 Schedule M.

Where Illinois saves you on retirement income, it takes back through real estate. The state's 1.83% average effective property tax rate on owner-occupied housing is the second-highest in the nation behind New Jersey, more than 70% above the national average of 1.07%. On the U.S. median home value of $405,300, an Illinois homeowner pays approximately $7,417 per year in property tax. In Cook County / Chicago, effective rates routinely run 1.9–2.4%, with high-tax suburbs like Park Forest, Calumet City, and parts of the South Suburbs exceeding 3% — among the highest in the country.

Property tax effective rates per Tax Foundation 2026; senior freeze income limits per 35 ILCS 200/15-172.

Illinois is one of only twelve states (plus DC) with a state estate tax, and its design is uniquely punishing. The federal estate tax exemption is $15,000,000 per person in 2026 (made permanent by OBBBA). The Illinois exemption is frozen at $4,000,000 — and unlike federal law, Illinois does not recognize portability between spouses, and the threshold is a cliff, not an exemption. Cross $4M by even $1, and the tax is calculated on the entire estate.

Because Illinois' threshold is so much lower than the federal $15M, many middle- and upper-middle-class Illinois families face a state estate tax their heirs never anticipated. A married couple with a $1.5M home, $2.5M in 401(k)s, and a $500K life insurance policy is already at $4.5M — well over the cliff. The combination of the cliff, the lack of portability, and the inclusion of life insurance (unless held in an ILIT) drives a small but meaningful migration of wealthy seniors to Florida, Tennessee, and Texas.

35 ILCS 405 (Illinois Estate and Generation-Skipping Transfer Tax Act); Illinois Attorney General Estate Tax Instruction Fact Sheet. HB2601 (proposed 2025) would double the exemption to $8M but has not passed.

Illinois' sales tax structure layers state, county, municipal, and special-district rates that vary block-by-block. The state base is 6.25%; the average combined state-and-local rate is 8.96% (Tax Foundation 2026), and Chicago's combined rate hits 10.25% — among the highest of any major US city.

Sales tax rates per IL DOR MyTax Illinois Tax Rate Finder; grocery tax change per Public Act 103-0781 (effective 1/1/2026).

Illinois maintains income tax reciprocity with four neighboring states: Iowa, Kentucky, Michigan, and Wisconsin. If you live in Illinois and work across the border in any of these four states (or vice versa), you only pay income tax to your home state — no double withholding, no allocation, no non-resident return. This is significant for the ~115,000 Illinois residents who commute to jobs in Iowa (Quad Cities), Wisconsin (Beloit, Kenosha, Lake Geneva), and elsewhere along the borders.

To claim reciprocity, employees file Form IL-W-5-NR (if they're a non-resident working in IL) or the corresponding form in the work state (e.g., Iowa Form 44-016) so their employer withholds for the home state instead. Without filing the form, the wrong state withholds and the employee has to wait until April to true up via refund and credit.

Reciprocity per 35 ILCS 5/302; non-resident filing per IL DOR Publication 130.