Sure, nobody enjoys paying income taxes, even if we know it’s going to a good cause. And we hear all the time about those states that don’t have income taxes and wonder why Illinois can’t do the same. But what are the actual laws covering our hard-earned pennies in the Land of Lincoln? Here is a brief summary of Illinois personal income tax laws.
Income Tax Laws in Illinois
Most states, including Illinois levy a personal income tax on residents in addition to federal income taxes. Illinois personal income tax law requires individuals, estates, and trusts within the state to pay 5 percent on all taxable net income. Certain corporations, partnerships, and trusts may have to pay additional taxes on their income. The basics of Illinois personal income tax law are summarized in the following table.
| Code Section | 35 ILCS 5/201, et seq. |
| Who is Required to File | Individuals, estates, and trusts; Partnerships are not taxable |
| Rate | 5% of taxable net income imposed on all taxpayers; An additional personal property replacement tax of 2.5% of net income is imposed on partnerships, trusts, and S corporations. Those earning more than $1 million in taxable income are levied an additional 3 percent tax on that income (beginning in the 2015 tax year) |
| Federal Income Tax Deductible | No |
| Federal Income Used as Basis | Yes |
As noted in the chart, Illinois state taxes coexist with federal tax laws. Under basic tax law, both the state and federal government are allowed to tax both unearned and earned income. Earned income includes salary, wages, tips, commissions, bonuses, unemployment benefits, and sick pay. Unearned income includes interest, dividends, profits from asset sales, business and farm income, rent income, royalties, gambling winnings, and alimony. Federal taxes are handled by the Internal Revenue Service (IRS) and are subject to the Internal Revenue Code (IRC). Many IRS forms and publications are available online.
Although a lot of state income tax codes are similar to the federal code, there can be important distinctions in each state that are important to understand before paying your taxes. Most states offer taxpayer assistance programs for those who need help filing their state and federal income tax returns, and many states provide their state tax forms online.
Illinois Personal Income Tax Laws: Related Resources
Tax issues can be the most complicated area of the law. For more introductory information on this topic you can visit FindLaw's extensive tax law section. If you would like legal assistance with a tax issue, you can contact an Illinois tax attorney in your area to discuss your case.
