Last Updated: April 2026
Illinois uses a flat state income tax of 4.95% on all income — one of only a handful of states with a constitutionally mandated flat rate (the Illinois Constitution requires any income tax to apply equally to all taxpayers, making a graduated rate structure illegal without a constitutional amendment). While the flat rate is moderate by national standards, Illinois property taxes are the highest in the Midwest and among the highest in the country, driven by one of the nation's worst public pension funding crises.
This guide covers Illinois's flat income tax (including Chicago residents' additional City Tax), the extraordinarily high property tax burden, the important retirement income exemption, Chicago's combined sales and use taxes, and the budget pressures that make Illinois's tax outlook uncertain.
Illinois's flat income tax of 4.95% applies to all income above the personal exemption: individual: $2,425; married: $4,850; additional $2,425 per dependent child. The exemption amounts are small — effectively everyone pays 4.95% on nearly all income. There is no standard deduction (unlike federal); Illinois has its own specific deductions, most of which are limited in scope.
In November 2020, Illinois voters rejected a constitutional amendment that would have replaced the flat tax with a graduated rate structure. The amendment failed 55%–45%. As a result, the flat 4.95% rate remains protected by the Constitution — raising it requires raising it equally for all taxpayers. This constitutional protection makes Illinois's income tax more predictable (though rate increases have still occurred: from 3% to 5% in 2011, partially reversed to 3.75% in 2015, then raised to 4.95% in 2017).
Illinois property taxes are 2nd highest nationally by effective rate (behind New Jersey), driven by: (1) heavy reliance on local property taxes to fund public schools; (2) one of the worst pension funding crises in the US, with Illinois public pension systems approximately 43% funded; (3) high local government fragmentation (Illinois has over 6,900 local taxing authorities — more than any other state). Property taxes in Illinois are administered at the county level, with each county setting millage rates for various taxing bodies.
Cook County median effective property tax rate approximately 2.0–2.5% depending on the municipality. Chicago city proper: approximately 1.80–2.0% effective. Chicago suburbs (Oak Park, Evanston, Berwyn): commonly 2.5–3.5% effective. A $400,000 Chicago home: approximately $7,200–8,000/year. A $400,000 home in Oak Park: approximately $10,000–12,000/year. Outside Cook County: Lake County approximately 2.4%; DuPage approximately 1.95%; Will approximately 2.3%.
Illinois provides several exemptions that reduce assessed value:
Chicago's combined sales tax is among the highest major city rates in the USA: state 6.25%; Chicago city 1.25%; Cook County 1.75%; Regional Transportation Authority 1%. Total: 10.25% on general merchandise. Reduced rate for groceries: 1% in Chicago (state 1% grocery rate + city portion at 0%); prescription drugs: 0% in Chicago. Restaurant meals: full 10.25%. This makes Chicago's effective sales tax burden among the highest in the Midwest.
Illinois's public pension systems (state teachers, state employees, judges, university employees) are approximately 43% funded — a $200+ billion unfunded liability. By law, Illinois cannot reduce earned pension benefits (Illinois Supreme Court rulings). The fiscal pressure creates significant upside risk for future tax increases. Historical pattern: Illinois has increased income tax rates three times since 2011. For long-term residents: understanding that Illinois's current 4.95% flat rate has increased in the past and may increase again is important for financial planning. The constitutional flat tax protection means any increase still applies uniformly to all taxpayers.
Chicago residents face additional local charges: lease transaction tax; parking taxes; amusement taxes; Chicago real estate transfer tax ($5.25/$500 seller; $3.75/$500 buyer = $10.75/$500 combined on residential real estate); Chicago water and utility taxes. These add materially to the effective tax burden on Chicago residents above the state level.
CountryTaxCalc.com is reader-supported. When you use our partner links, we may earn a commission at no cost to you. Learn more about our affiliate partnerships
★ 4.8 verified reviews · 3,758 reviews
Questions about Illinois estate tax, property tax appeals, Chicago-specific taxes, or the retirement income exemption? TaxHub connects you with licensed Illinois CPAs who can advise on your specific situation.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
Talk to an Illinois CPA About Your Taxes →Yes — Illinois's retirement income exemption is one of the most comprehensive in the USA. The following types of retirement income are completely exempt from Illinois income tax: Social Security benefits; pension income from qualified government and private pension plans; IRA distributions (traditional and Roth); 401(k) and 403(b) distributions; military retirement pay; Illinois state/municipal employee pension distributions (teachers, police, fire, state workers); railroad retirement benefits. In practice, this means a retired Illinois couple receiving $80,000/year in pension, Social Security, and IRA income pays $0 in Illinois income tax on that income. This makes Illinois competitive for retirees despite the high property taxes — particularly for those receiving defined-benefit pensions who plan to stay in their home (property tax exemptions for seniors help further). The exemption was not changed in the 2020 failed graduated tax amendment attempt — both 'yes' and 'no' campaigns affirmed its continuation.
Illinois property taxes are high for several structural reasons: (1) Public school funding — Illinois historically relied heavily on property taxes to fund local schools, creating high school district levies; (2) Government fragmentation — Illinois has 6,900+ local taxing bodies (townships, fire protection districts, mosquito abatement districts, library districts) that all levy property taxes; (3) Pension crisis — local governments raise property taxes to cover unfunded pension liabilities for municipal employees; (4) Low state school funding — Illinois provides a smaller share of K-12 funding from state revenues than most states, pushing the burden to local property taxes; (5) TIF (Tax Increment Financing) districts — Chicago's extensive use of TIFs diverts property tax revenue from schools to development projects, requiring higher overall levies to meet school funding needs. Illinois has not fundamentally reformed its property tax structure despite decades of discussion. Property tax relief (frozen assessments, increased exemptions) at the local level provides partial mitigation but doesn't address the structural drivers.
Comparing Illinois to neighboring Midwest states on a $100,000 income, $300,000 home scenario: Illinois: income tax $4,950; property tax ~$6,240; total ~$11,190. Indiana: income tax $3,150 (3.15%); property tax ~$1,680 (0.56%); total ~$4,830. Wisconsin: income tax ~$5,250 (progressive 3.54–7.65%); property tax ~$4,980 (1.66%); total ~$10,230. Ohio: income tax ~$3,500 (progressive 0–3.5% + municipal); property tax ~$4,770 (1.59%); total ~$8,270. Michigan: income tax ~$4,050 (4.05%); property tax ~$4,620 (1.54%); total ~$8,670. Iowa: income tax ~$3,800 (3.8% flat); property tax ~$4,710 (1.57%); total ~$8,510. Illinois ranks notably high due to the combination of a moderate flat income tax AND very high property taxes. Indiana is clearly the lowest-burden state in the Midwest.
Illinois has an estate tax but no inheritance tax. Illinois estate tax: $4M exemption; rates range from 0.8% to 16%. This is significantly lower than the federal exemption ($13.61M in 2024), meaning Illinois estates between $4M and $13.61M owe Illinois estate tax but no federal estate tax. Illinois estate tax rates: 0.8% on first $1M above exemption, rising to 16% on amounts above $10.04M above exemption. Example: $6M Illinois estate = $2M above the $4M exemption; Illinois estate tax approximately $141,600. Illinois's $4M estate tax exemption (not indexed for inflation) affects more families than many residents realize — particularly those with appreciated real estate and retirement accounts. Illinois allows a marital deduction (100% exempt for transfers to US citizen spouse) and a charitable deduction. Unlike the federal exemption, Illinois does not provide portability of the unused exemption between spouses — each spouse uses their own $4M exemption or loses it.
From a pure tax perspective, Chicago presents a mixed picture: Advantages: no separate city income tax (unlike NYC or Philadelphia); Illinois's full retirement income exemption makes Chicago attractive for retirees; the flat 4.95% income tax is moderate for a major city. Disadvantages: Cook County property taxes 2.0–2.5% are high; Chicago combined sales tax 10.25% is among the highest major city rates nationally; Chicago-specific taxes (lease tax, amusement tax, real estate transfer tax) add to cost; Illinois's pension crisis creates uncertain future tax trajectory. Comparison: NYC resident ($300,000 income): state + city income tax ~$39,000/year. Chicago resident ($300,000 income): state income tax ~$14,850 (4.95%). Chicago's lower income tax burden vs NYC is significant but partially offset by high property and sales taxes. Overall: Chicago is cheaper than New York City and San Francisco for high earners, more expensive than Dallas, Houston, or Phoenix.