Illinois State Tax Guide 2026
Illinois has a simple flat income tax rate of 4.95% for all taxpayers. The Prairie State is exceptionally attractive for retirees because it completely exempts ALL retirement income from state taxation - including Social Security, 401(k) withdrawals, IRA distributions, and pension income.
🎯 Illinois Tax Benefits:
- 4.95% flat rate - simple, no brackets to calculate
- 100% exempt retirement income - 401(k), IRA, pensions TAX FREE
- No tax on Social Security - keep every dollar
- Property tax relief - credits available for homeowners
- Expanded EITC - 20% of federal credit for 2026
⚠️ High Property & Sales Taxes:
- Property taxes: Among highest in nation (~1.92% median rate)
- State sales tax: 6.25% base rate
- Chicago total sales tax: Can exceed 10% with local additions
- Estate tax: $4 million exemption (lower than federal)
What Taxes Do You Pay in Illinois?
Illinois residents pay the following taxes:
- Federal Income Tax: Standard federal rates apply (10% - 37%)
- Federal Self-Employment Tax: 15.3% on net self-employment income
- IL State Tax: 4.95% flat rate on taxable income
- Property Tax: ~1.92% median (highest in nation)
- Sales Tax: 6.25% state + local (up to 10.25% total)
- Estate Tax: Estates over $4 million
Illinois Retirement Income Exemptions
Illinois is one of the BEST states for retirees - 100% tax-free retirement income:
- 401(k) distributions: Completely exempt from IL tax
- Traditional IRA withdrawals: 100% tax free
- Roth IRA conversions: Tax free
- Public & private pensions: Fully exempt
- Social Security benefits: No state tax whatsoever
- Annuities: Retirement annuities exempt
Important: Early withdrawals before 59½ may still have federal penalties, but Illinois won't tax them!
2026 Federal Tax Brackets (Applies to IL Residents)
| Tax Rate |
Single |
Married Filing Jointly |
| 10% | $0 - $12,400 | $0 - $24,800 |
| 12% | $12,401 - $49,500 | $24,801 - $99,000 |
| 22% | $49,501 - $105,400 | $99,001 - $210,800 |
| 24% | $105,401 - $201,150 | $210,801 - $402,300 |
| 32% | $201,151 - $255,425 | $402,301 - $510,850 |
| 35% | $255,426 - $640,600 | $510,851 - $768,700 |
| 37% | $640,601+ | $768,701+ |
Federal Standard Deduction 2026
- Single: $16,100
- Married Filing Jointly: $32,200
- Head of Household: $24,150
Illinois Personal Exemption 2026
For Illinois state tax purposes:
- Personal exemption: $2,925 per person (increased from $2,850 in 2025)
- Additional allowances: $1,000 per qualifying dependent
- Age 65+ exemption: Additional allowance if 65 or older
Pros and Cons of Living in Illinois
Pros:
- Simple flat 4.95% income tax
- 100% exempt ALL retirement income (401k, IRA, pensions, Social Security)
- Chicago offers world-class culture, food, and entertainment
- Central US location with good transportation
- Strong economy with diverse job market
- Expanded EITC (20% of federal credit)
Cons:
- Highest property taxes in the nation (~1.92% median)
- High combined sales taxes (up to 10.25%)
- Estate tax with $4M exemption (lower than federal)
- Cold winters with harsh weather
- State has financial challenges and pension debt
Illinois vs Other Flat Tax States
| State |
Flat Tax Rate |
Retirement Tax |
| Arizona | 2.5% | 2.5% (taxed) |
| Pennsylvania | 3.07% | 0% (exempt) |
| Colorado | 4.40% | Partially exempt |
| Illinois | 4.95% | 0% (100% exempt) |
| Massachusetts | 5.0% | 5.0% (taxed) |
Illinois Tax Credits 2026
- Illinois Earned Income Credit: 20% of federal EITC (up from 18%)
- Property Tax Credit: 5% of property tax paid (income limits apply)
- Education Expense Credit: Up to $850 per household (indexed for inflation)
- Child Tax Credit: Available to EITC-qualifying families with dependents under 12
Who Should Move to Illinois?
- Retirees: 100% tax-free retirement income is HUGE savings
- Chicago lovers: World-class city with culture, sports, dining
- Midwest professionals: Strong job market, especially in Chicago
- Remote workers: Lower income tax than coastal states
- Healthcare workers: Major hospital systems (Rush, Northwestern, UChicago)
Property Tax Relief Programs
Illinois offers several programs to help offset high property taxes:
- General Homestead Exemption: Reduces assessed value
- Senior Citizen Homestead Exemption: $5,000 off EAV ($8,000 in Cook County)
- Senior Citizens Assessment Freeze: Freezes assessed value (income limits apply)
- Property Tax Credit: 5% of property taxes paid on state return
Important: This calculator estimates Illinois state + federal taxes. Local income taxes do NOT apply in Illinois (unlike Pennsylvania or Ohio). However, property and sales taxes are among the highest in the nation. For complete tax planning, consult with an Illinois CPA.