The Illinois corporate income tax is actually two separate taxes, one at 7% and a second stacked tax rate of 2.5%.
Specific Tax Payment Examples
- A home business grossing $55,000 a year pays $5,225.00.
- A small business earning $500,000 a year pays $4,750.00.
- A corporation earning $10,000,000 a year pays $950,000.00.
The Illinois state income tax rate is a flat 4.95% of federal adjusted gross income.
Taxation of Different Entities
- Certain nonprofit entities registered in Illinois may be able to exempt some or all of their qualifying income from Illinois and federal income taxes.
- All incorporated Illinois businesses should file an informational tax return and a federal business tax return with the IRS.
- Illinois used to have a Franchise Tax on businesses, starting to repeal this tax from 2021 to 2025.
- Every LLC member earning profit has to pay 15.3% Federal Self-Employment Tax on earnings.
- S corporations can distribute some profits as dividends to avoid self-employment tax.
Pass-through Entity Level Taxes
- Illinois created an elective, entity-level income tax for pass-through entities (PTE) called the PTE tax.
- Publicly traded partnerships cannot use this PTE tax.
General Taxation Practices
- Most businesses pay income tax, replacement tax, some combination, or franchise tax.
- Single-member LLCs don’t pay replacement tax.
Note: Many states have better tax codes than Illinois overall. Illinois has the 11th highest state and local tax collections per capita.