Illinois offers a vibrant environment for business, with over 1.2 million small businesses employing about 45% of the state’s workforce. Whether you’re an established business owner or planning to start a new venture, understanding the tax landscape in Illinois is crucial. This guide provides an overview of the various taxes small businesses in Illinois must navigate, including tax rates, filing requirements, and deadlines.
Types of Business Taxes in Illinois
Business owners in Illinois may be subject to various taxes depending on their business structure, activities, and revenue. Here’s a breakdown of the main types of taxes:
- Business Income Tax
- Applicable Entities: C corporations, LLCs with C corp elections
- Tax Rate: 7%
- Filing Requirements: File Form IL-1120 by the 15th day of the fourth month after the tax year ends for tax years not ending on June 30. File by September 15 for tax years ending on June 30.
- Estimated Payments: Required if expected liability for the year is at least $400. Payments are due quarterly on the 15th day of the fourth, sixth, ninth, and 12th months of the tax years.
- Pass-Through Entity (PTE) Tax
- Applicable Entities: S corporations, partnerships, LLCs
- Tax Rate: 4.95%
- Filing Requirements: For S corporations, file Form IL-1120-ST by the 15th day of the third month following the close of the tax year. For partnerships and LLCs, file Form IL-1065 by the 15th day of the fourth month following the close of the tax year.
- Estimated Payments: Required if liability exceeds $500. Payments are due quarterly on the 15th day of the fourth, sixth, ninth, and 12th months of the tax year.
- Sales and Use Tax
- Applicable Activities: Retail sales
- Tax Rate: 6.25% on general merchandise, 1.0% on qualifying foods, drugs, and medical appliances (local rates may also apply)
- Filing Requirements: File Form ST-1 monthly, quarterly, or annually based on sales volume.
- Withholding Tax
- Applicable Entities: Employers with employees
- Tax Rate: 4.95%
- Filing Requirements: File quarterly returns on Form IL-941 by April 30, July 31, October 31, and January 31. Make payments monthly or semi-weekly (as assigned) on Form IL-501.
- Unemployment Insurance Tax
- Applicable Entities: Employers that have paid $1,500 in wages in a single calendar quarter or employed one or more people for 20 weeks in a given calendar year
- Tax Rate: Varies based on business’s experience rating
- Filing Requirements: File quarterly reports on Form UI3/40 by April 30, July 31, October 31, and January 31.
- Personal Property Replacement Tax
- Applicable Entities: C corporations, S corporations, LLCs, partnerships
- Tax Rate: 2.5% for C corporations; 1.5% otherwise
- Filing Requirements: For C corporations, file Form IL-1120 by the 15th day of the fourth month after the tax year ends for tax years not ending on June 30 or by September 15 for tax years ending on June 30. For S corporations, file Form IL-1120-ST by the 15th day of the third month following the close of the tax year. For partnerships and LLCs, Form IL-1065 by the 15th day of the fourth month following the close of the tax year.
- Nonresident Withholding Tax
- Applicable Entities: Pass-through entities with nonresident members
- Tax Rate: 4.95% on distributive share income
- Filing Requirements: For S corporations, file Form IL-1120-ST by the 15th day of the third month following the close of the tax year. For partnerships and LLCs, Form IL-1065 by the 15th day of the fourth month following the close of the tax year.
How to File and Pay Illinois Business Taxes
Business taxes in Illinois can be filed and paid through various methods:
- Online Filing and Payment: Use MyTax Illinois for electronic submissions and payments.
- Mail: Send forms and payments to the address on the form or voucher.
Important Deadlines
Keep track of these key dates to avoid penalties:
- Business Income Tax Returns: Due by the 15th day of the fourth month after the tax year ends for tax years not ending on June 30 and by September 15 for tax years ending on June 30
- Estimated Tax Payments: Due quarterly on the 15th day of the fourth, sixth, ninth, and 12th months of the tax year
- Sales and Use Tax Returns: Monthly, quarterly, or annual filing based on sales volume
- Withholding Tax Returns: Due quarterly by April 30, July 31, October 31, and January 31.
- Unemployment Insurance Reports: Due quarterly by April 30, July 31, October 31, and January 31.
Tax Credits and Incentives
Illinois offers several tax credits and incentives for small businesses, including:
- Enterprise Zone Investment Credit: Includes a variety of incentives and exemptions for investments by businesses located or expanding in a designated enterprise zone.
- New Markets Development Tax Credit: Available for qualified investments made in a community development entity. Credits are allowed on the second anniversary of the investment (7%) plus the next four anniversaries (8%).
- Credit for Wages Paid to Ex-Felons: Equal to .05% of qualified wages paid to qualified ex-offenders. Total credits for all tax years for wages paid to a particular employee can’t exceed $1,500.
- Research and Development Tax Credit: 6.5% of the excess of qualified research expenses over the base amount. Qualified research expenses generally include wages, supplies, computer rental, and contract research.
Illinois’s business tax breakdown by business type
Business taxes can get complicated, so below, we’ve included a chart that breaks down the taxes different business structures usually pay.
Keep in mind that pass-through entities don’t pay federal income taxes themselves—the obligation is passed on to their business owners or shareholders, who pay them through their personal income tax returns.
| Business type | Personal income tax | Business income tax | PTE tax | Replacement tax | Sales and use tax | Withholding tax | Unemployment tax | Federal income taxes |
| C corporation | No | No | No | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
| S corporation | Yes (pass-through), if not making the PTE tax election | No | Yes, if it makes the election | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| LLC | Yes (pass-through), if not making the PTE tax election | Depends on how it’s structured | Depends on how it’s structured and if it makes the election | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Partnership | Yes (pass-through), if not making the PTE tax election | No | Yes, if it makes the election | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Sole proprietorship | Yes (pass-through) | No | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
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Illinois Small Business Taxes: The Employer’s Complete 2023 Guide
Illinois has a history of high business taxes, but it’s also a great state for ambitious entrepreneurs, thanks in part to Chicago’s growing startup landscape. A 2022 survey from Looka ranked Illinois as the fourth best state for entrepreneurs based on factors like cost of living and median household income.
According to the Small Business Administration’s 2022 Office of Advocacy report, Illinois has 1.2 million small businesses across the state, collectively employing nearly half (44.7%) of all Illinois employees. If you own a business in Illinois—or want to start one—it’s crucial to know how small business taxes in Illinois work.
Keep reading for a breakdown of the different taxes small business owners have to pay, the tax rates, and the deadlines for payment.
What kind of business taxes do you have to pay in Illinois?
Illinois businesses get charged different taxes based on their entity type, employment structure, and business activity. As an Illinois business owner, you could end up paying business income tax, personal property replacement tax, pass-through entity tax, sales and use tax, withholding tax, or unemployment insurance tax.
Illinois business income tax
If you own a corporation or a limited liability company (LLC) with a C corp tax election, you have to pay Illinois business income tax, sometimes referred to as corporate income tax or Illinois income tax. The business income tax rate is 7% of your net income.
S corporations, partnerships, standard LLCs, and sole proprietorships don’t pay Illinois business income tax.
How to pay Illinois business income tax and file your return
If you owe business income tax, you have to file Form IL-1120, Corporation Income and Replacement Tax Return annually. The date you file depends on when your tax year ends.
- For tax years ending on dates other than June 30, you have to file your return on or before the 15th day of the fourth month after the close of the tax year (April 15 for calendar-year businesses).
- For tax years ending on June 30, you have to file your return on or before the 15th day of the third month following the close of the tax year (September 15).
If you expect to owe at least $400 in business income tax during the year, you need to make estimated payments every quarter to the Illinois Department of Revenue. Estimated payments are due on the 15th days of the fourth, sixth, ninth, and 12th months of the tax year.
You can make estimated payments online using MyTax Illinois or ACH Credit, or by mail using the corporate income tax return payment voucher.
Illinois personal property replacement tax
Illinois’ personal property replacement tax, also called replacement tax, is a tax on the net income of C corps, subchapter S corps, partnerships, and trusts. (It’s important to note that LLCs are considered partnerships in Illinois.)
The purpose of the replacement tax is to replace the money Illinois lost when local governments could no longer impose personal property taxes. The amount you pay depends on your entity type. C corps pay a rate of 2.5% of their net income, while partnerships, trusts, and S corps pay 1.5% of their net income.
How to pay personal property replacement tax
If you owe Illinois replacement tax, you need to file an annual return and make payments. Here are the respective due dates depending on your entity type:
- C corps: You report and pay replacement tax on your annual corporate income tax return. The deadlines are the same. For tax years ending other than June 30, the due date is the 15th day of the fourth month after the end of the tax year; for tax years ending June 30, the due date is September 15. You’re also required to make estimated payments every quarter.
- Partnerships and trusts: The due date for your return and tax payment is the 15th day of the fourth month following the end of your tax year. You don’t need to make estimated payments on replacement tax. Download the return for partnerships (Form IL-1065) here and the return for trusts (Form IL-1041) here.
- S-corps: The due date for your return and tax payment is the 15th day of the third month following the end of your tax year. You don’t need to make estimated payments on replacement tax. Download Form IL-1120-ST here.
Illinois pass-through entity tax
Illinois offers an elective pass-through entity (PTE) tax that partnerships and subchapter S corps can opt to pay until January 1, 2026. The appeal of the PTE tax is that it allows Illinois residents to get around the $10,000 federal cap on deducting state taxes on individual tax returns. You can’t take the PTE tax as a C corp, LLC taxed as a C corp, or sole proprietorship.
The PTE tax rate is 4.95% of the taxpayer’s net income for the taxable year. If you want to take the PTE tax, you have to make the election using Form IL-1065, the Partnership Replacement Tax Return or Form IL-1120-ST, Small Business Replacement Tax Return by their respective due dates (IL-1065 is due on or before the 15th day of the fourth month after the end of a tax year; IL-1120-ST is due on or before the 15th day of the third month after the end of a tax year).
How to pay PTE tax
If you take the PTE tax and expect to owe more than $500 in taxes throughout the year, you have to make estimated quarterly payments. Estimated payments are due on the 15th days of the fourth, sixth, and ninth months of the tax year, as well as the first month following the close of the tax year.
You have two options for making estimated payments:
- Electronically using MyTax Illinois or ACH Credit
- By mail using Form IL-1065-V, Payment Voucher for Partnership Replacement Tax or Form IL-1120-ST-V, Payment Voucher for Small Business Corporation Replacement Tax
Keep in mind that you’re required to make electronic payments if your business’s annual tax liability, including PTE tax, meets or exceeds $20,000.
Illinois sales and use tax
Illinois imposes sales tax on tangible personal property and certain services sold within the state. Illinois also imposes use tax on items where sales tax wasn’t charged and collected. Think: if your business takes personal property from your sales inventories for your own use.
The sales and use tax rates are 6.25% on general merchandise and 1% on qualifying food, drugs, and medical appliances. The sales tax rate is higher in some areas because certain local jurisdictions are allowed to impose their own taxes, which can be combined with the state sales tax rate. Local tax rates are subject to change twice a year: January 1 and July 1.
You can see local tax rates here using the Illinois Department of Revenue’s Tax Rate Finder.
How to pay sales and use tax
If you sell general merchandise or qualifying food, drugs, or medical appliances, you need to file Form ST-1, Sales and Use Tax and E911 Surcharge Return. You’ll be assigned a filing frequency depending on how much sales tax you collect. Here are the due dates:
- Monthly returns are due the 20th day of the month following the reporting period. (April returns are due by May 20, for example.)
- Quarterly returns are due the 20th day of the month following the reporting quarter. (Q2 returns are due July 20, for example.)
- Annual returns are due January 20 of the year following the reported year.
You can make electronic payments here.
Illinois withholding tax
If you have employees you withhold payroll taxes for, you have to pay Illinois withholding tax. The withholding tax rate is 4.95% of your net income. You can learn more about Illinois withholding amounts and how to calculate them here.
How to pay withholding tax
If you owe withholding tax, you need to report it once a quarter using Form IL-941, Illinois Withholding Income Tax Return. You also need to make payments using Form IL-501, Withholding Payment Coupon.
The Illinois Department of Revenue assigns taxpayers one of two withholding payment schedules: semi-weekly or monthly. You can make payments online here.
Need help determining withholdings for your employees? Check out Gusto’s Illinois Salary Paycheck and Payroll Calculator.
Illinois unemployment insurance taxes
If you have employees, you’re also probably subject to Illinois state unemployment taxes. The state requires most for-profit businesses to pay unemployment taxes to the Illinois Department of Employment Security (IDES) once one of the following criteria applies:
- You’ve paid $1,500 in wages in a single calendar quarter or employed one or more people for 20 weeks in a given calendar year; or
- You’ve paid $1,000 in cash wages in one calendar quarter for domestic work; or
- You’ve paid $20,000 in cash wages in one calendar quarter or employed 10 or more workers for 20 weeks in a given calendar year for farm work.
The unemployment tax rate for new employers in 2023 is 3.95% with a taxable wage base of $13,271. If you’re not a new employer, your tax rate depends on your business’s experience and number of employees.
How to pay Illinois unemployment taxes
If you’re a new employer in Illinois, you need to register with IDES through the MyTax Illinois website. From there, you need to file wage reports using Form UI-3/40 and pay your taxes on a quarterly basis.
The due dates for reports and payments are the last day of the month after the close of each quarter (April 30, July 31, October 31, and January 31). You can pay online using MyTax Illinois or mail your forms and payments to the below address:
IDES P.O. Box 19300
Springfield, Illinois 62794-9300
Want to see how Illinois’ unemployment tax rate compares to other states? Here’s an updated list of unemployment tax rates for every state.
Illinois individual income tax
Every taxpayer earning or receiving income in Illinois has to pay Illinois income tax. If you run a sole proprietorship or pass-through entity and don’t have to pay the Illinois corporate business income tax, your individual income tax rate is a flat rate of 4.95%, no matter how much you earn.
How to pay individual income tax
You have to report and pay Illinois individual income tax using Form IL-1040. The due date for calendar-year filers is the same as the federal income due date: April 15 of the year following the tax year.
You also have to make estimated payments if you expect your tax liability to exceed $1,000 for the year (after subtracting credits and deductions). If you operate on a calendar year, your estimated payments are due April 15, June 15, September 15, and January 15. If you operate on a fiscal year, your payments are due on the 15th day of the fourth, sixth, and ninth months of the fiscal year, and the first month after the end of the fiscal year. You can make online payments here.
Illinois business tax breakdown
Here’s a summary of Illinois business types and their federal and state tax obligations. Keep in mind that pass-through entities don’t pay federal income taxes.
| Business type | Business income taxes | Sales and use taxes | Unemployment insurance taxes | Pass-through entity tax | Federal taxes |
| C corporation | Yes, 7% business income tax rate | Yes, if applicable | Yes, if you hire employees | No | Yes |
| S corporation | No | Yes, if applicable | Yes, if you hire employees | Yes, if elected | No |
| LLC with C corp election | Yes, 7% business income tax rate | Yes, if applicable | Yes, if you hire employees | No | Yes |
| LLC | No | Yes, if applicable | Yes, if you hire employees | Yes, if elected | No |
| Partnership | No | Yes, if applicable | Yes, if you hire employees | Yes, if elected | No |
| Sole proprietorship | No | Yes, if applicable | Yes, if you hire employees | No | No |
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