Illinois income tax for small businesses: a short guide
Illinois taxes income at a flat rate, and some businesses also owe a separate replacement tax. Here is how it works for owners, with 2026 numbers and the dates that trip people up.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 29, 2026.
The Illinois Income Tax Act (35 ILCS 5) taxes the net income of individuals, corporations, trusts and estates, with replacement tax on partnerships. The Illinois Department of Revenue (IDOR) runs it. It matters to owners and employers. We sort it out with the Riverside Five-Gate Review. The official text is on the Illinois General Assembly website.
- Individuals pay a flat 4.95 percent in 2026. C corporations pay 7 percent plus 2.5 percent replacement tax.
- S corporations and partnerships pay 1.5 percent replacement tax; owners pay on their shares.
- Estimates start above $1,000 for individuals and $400 for C corporations.
- An extension is for filing, not paying. Late payment costs 2 percent, then 10 percent.
Who it covers
| Taxpayer | Covered? | Note |
|---|---|---|
| Individual or sole proprietor | Yes | 4.95 percent; Form IL-1040 |
| C corporation | Yes | 7 plus 2.5 percent replacement tax; Form IL-1120 |
| S corporation | Replacement tax | 1.5 percent; shareholders pay on their shares; Form IL-1120-ST |
| Partnership or LLC taxed as one | Replacement tax | 1.5 percent; partners pay on their shares; Form IL-1065 |
| Trust or estate | Yes | 4.95 percent, plus 1.5 percent replacement tax for trusts; Form IL-1041 |
| Exempt organization | Unrelated income | Income and replacement tax on it; Form IL-990-T |
The numbers
These apply statewide.
| Item | Amount or date | Year |
|---|---|---|
| Personal exemption | $2,925 (2025: $2,850) | 2026 |
| Estimate triggers | $1,000 individuals; $400 C corporations; $500 electing pass-throughs | 2026 |
| Individual estimated payments | Due 15 Apr, 15 Jun and 15 Sep in 2026, then 15 Jan 2027 | 2026 |
| Withholding | 4.95 percent of pay after $2,925 allowances; IL-941 due 2 Nov 2026 | 2026 |
Source: IDOR
Our checklist
The Riverside Five-Gate Review has five questions.
- Entity: right return, and IDOR registration (Form REG-1) before the first hire or sale?
- Owners: PTE election weighed yearly, and Form IL-1000-E taken only from non-individual owners?
- Payroll: withholding, deposits and quarterly electronic IL-941 filing on schedule?
- Estimates: safe harbor met (100 percent of the prior year's tax, if that year showed tax, or 90 percent of the current year's tax) in timely installments?
- Dates: original, extension and any 60-day protest dates on the tax calendar?
Mistakes people make
- Treating the extension as extra time to pay. The tax stays due on its original date.
- Filing a second return, not the amended form (such as IL-1065-X), or missing the 120-day federal-change window.
- Using Form IL-1000-E for an individual owner. Only non-individual nonresident owners can give it.
Call an attorney about a notice you want to contest, since a Tax Tribunal or court petition is a legal proceeding. See state taxes and small business compliance.
Common questions
Does Illinois have tax brackets?
No. Individuals pay a flat 4.95 percent in 2026.
Do S corporations and partnerships owe Illinois tax?
Both owe 1.5 percent replacement tax, and owners pay on their shares unless the entity elects to pay.
Does a remote worker in another state trigger Illinois withholding?
Withholding is not required by IDOR for a nonresident with fewer than 31 days of Illinois service whose pay is not localized here, or for Iowa, Kentucky, Michigan or Wisconsin residents.
Official sources
- Illinois Department of Revenue: Income tax rates
- Illinois Department of Revenue: Business income tax estimated payments
- Illinois Department of Revenue: Withholding income tax
- Illinois Department of Revenue: Publication 103, penalties and interest
- Illinois General Assembly: Income Tax Act, section 201
Keep reading
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