Business Tax in Illinois: Complete Guide 2026
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Business Tax in Illinois: Complete Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Illinois imposes a relatively high combined corporate income tax rate and has several unique features that businesses must navigate, including the Personal Property Replacement Tax (PPRT) and a franchise tax. The state’s flat individual income tax rate also applies to pass-through business income. For businesses operating in or considering Illinois, understanding the full spectrum of state taxes — corporate income, personal property replacement, franchise, sales, and payroll — is essential for accurate planning and compliance.
Illinois Business Tax Rates (2026)
| Tax Type | Rate |
|---|---|
| Corporate income tax | ~7.0% |
| Personal Property Replacement Tax (corporations) | ~2.5% |
| Personal Property Replacement Tax (partnerships/S-corps) | ~1.5% |
| Combined corporate rate (income + PPRT) | ~9.5% |
| Individual income tax (pass-through income) | ~4.95% |
| Franchise tax | Being phased out (reduced annually) |
| State sales tax rate | ~6.25% |
Illinois’ combined corporate tax rate of ~9.5% (income tax plus PPRT) places it among the higher-tax states for corporate business.
How Illinois Business Taxes Work
Corporate Income Tax
Illinois levies a ~7.0% corporate income tax on net income apportioned to the state. Illinois uses a single-factor sales apportionment formula for most businesses, meaning only revenue sourced to Illinois customers determines the share of income taxed by Illinois. This benefits companies headquartered in Illinois with significant out-of-state sales.
The tax applies to C corporations. S corporations, partnerships, and LLCs treated as partnerships are generally pass-through entities, with income taxed on the owners’ individual returns.
Personal Property Replacement Tax (PPRT)
The PPRT is an additional tax imposed on business income:
- C corporations: ~2.5% of net income
- Partnerships, S corporations, and trusts: ~1.5% of net income
The PPRT applies to all entity types including pass-through entities, making it one of the few entity-level taxes on partnerships and S corporations in Illinois. The PPRT is reported on a separate return (Form IL-1065 for partnerships, Form IL-1120-ST for S corps) and is due on the same schedule as the income tax return.
Franchise Tax Phase-Out
Illinois has been phasing out its franchise tax (a tax based on paid-in capital). The exemption amount has been increasing annually, and the tax is expected to be fully eliminated in the near term. Businesses should verify current exemption levels with the Illinois Secretary of State.
Individual Income Tax on Pass-Through Income
Sole proprietors, partners, S corporation shareholders, and LLC members report their share of business income on their individual Illinois returns and pay the flat ~4.95% individual income tax rate plus ~1.5% PPRT at the entity level.
Key Business Tax Obligations in Illinois
| Obligation | Description | Filing Frequency |
|---|---|---|
| Corporate income tax (IL-1120) | ~7.0% on apportioned income | Annual |
| PPRT (IL-1120/IL-1065/IL-1120-ST) | ~2.5% (corps) or ~1.5% (pass-through) | Annual |
| Sales tax | ~6.25% state + local additions | Monthly/Quarterly |
| Withholding tax | ~4.95% on employee wages | Semi-weekly to quarterly |
| Unemployment insurance | ~0.675% to ~6.875% on first ~$13,590 | Quarterly |
| Annual report | Filed with Secretary of State | Annual |
Comparison to Neighboring States
| State | Corporate Rate | Combined Rate | Individual Rate (Pass-Through) |
|---|---|---|---|
| Illinois | ~7.0% (+~2.5% PPRT) | ~9.5% | ~4.95% (+~1.5% PPRT) |
| Indiana | ~4.9% | ~4.9% | ~3.05% |
| Iowa | ~5.5% (flat) | ~5.5% | ~4.4% to ~5.7% |
| Wisconsin | ~7.9% | ~7.9% | ~3.54% to ~7.65% |
| Missouri | ~4.0% | ~4.0% | ~2% to ~4.8% |
| Michigan | ~6.0% (CIT) | ~6.0% | ~4.05% |
Illinois’ combined corporate rate of ~9.5% is the highest in the region, driven largely by the PPRT. Indiana and Missouri offer significantly lower rates for corporate entities.
Tips for Illinois Business Owners
- Factor in the PPRT when comparing Illinois tax costs to other states. The ~2.5% PPRT on corporations and ~1.5% on pass-through entities is often overlooked in state comparisons.
- Leverage single-factor sales apportionment if your business has significant out-of-state revenue. Only Illinois-sourced sales determine your apportioned income, which can substantially reduce your Illinois tax.
- Consider entity structure — the combined rate for C corporations (~9.5%) versus pass-through entities (~4.95% individual + ~1.5% PPRT = ~6.45%) can differ significantly. Consult the self-employment tax guide for federal implications.
- Track the franchise tax phase-out — as exemption amounts increase, many businesses will owe no franchise tax, but filings may still be required.
- Claim available credits — Illinois offers research and development credits, enterprise zone credits, economic development credits, and other incentives that can offset the high combined rate.
- Manage sales tax compliance carefully. Illinois’ combined state and local sales tax can reach ~10.25% in some jurisdictions (e.g., Chicago). Use the federal income tax guide to understand deductibility of state taxes.
- File estimated payments — Illinois requires quarterly estimated tax payments for businesses expecting to owe more than ~$500. Late payments incur penalties and interest.
Key Takeaways
- Illinois’ combined corporate tax rate (income tax + PPRT) is ~9.5%, among the highest in the region.
- The PPRT of ~1.5% applies even to pass-through entities at the entity level, a relatively unusual feature.
- Illinois uses single-factor sales apportionment, benefiting companies with out-of-state revenue.
- Pass-through business income is taxed at ~4.95% on individual returns plus the ~1.5% PPRT.
- The franchise tax is being phased out.
- Sales tax rates can exceed ~10% in Chicago and some other localities.
Next Steps
- Self-Employment Tax Guide — understand federal self-employment taxes on Illinois business income.
- Federal Income Tax Guide 2026 — learn how state business taxes interact with your federal return.
- State Income Tax Rates Comparison 2026 — compare Illinois’ business tax competitiveness.
- Tax Bracket Calculator — estimate your total tax on pass-through business income.
- Find a CPA Near You — connect with an Illinois business tax professional.