Income Taxes

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Business Income - Corporate

Statutory Reference: 35 ILCS 5/101 to 5/1701

The Illinois Income Tax is imposed on every corporation earning or receiving income in Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal income tax code.

Tax rate – Corporations pay 4.8 percent income tax and 2.5 percent replacement tax.  

Tax base – The starting point for the Illinois Corporate Income Tax Return is federal taxable income, which is income minus deductions. Next, the federal taxable income is changed by adding back certain items (e.g., state, municipal and other interest income excluded from federal taxable income) and subtracting others (e.g., interest income from U.S. Treasury obligations). The result is “base income.”

Business Income - Fiduciary

Statutory Reference: 35ILCS 5/101 to 5/1701

The Illinois Income Tax is imposed on every trust and estate earning or receiving income in Illinois or as a resident of Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal income tax code.  

Tax rate – The income tax rate for a trust or estate is 3 percent. Trusts also pay a 1.5 percent Personal Property Tax Replacement Income Tax (replacement tax). Estates do not pay replacement tax.

Business Income - Partnership

Statutory Reference 35 ILCS 5/101 to 5/1701

The Illinois Income Tax is imposed on every partnership earning or receiving income in Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal income tax code.

Tax rate – Partnerships pay 1.5 percent Personal Property Tax Replacement Income Tax (replacement tax). Partnerships are subject to the replacement tax, but do not pay the regular Illinois income tax. Generally, income from a partnership is passed on to the partners. The partners must include this income in their federal adjusted gross income (for individuals) or federal taxable income (for other taxpayers). This is the starting point for Illinois income tax purposes and where the regular income tax is paid.

Tax base – The starting point for the Illinois Partnership Return is federal taxable income, which is income minus deductions. Next, the federal taxable income is changed by adding back certain items (e.g., state, municipal, and other interest income excluded from federal taxable income) and subtracting others (e.g., interest income from U.S. Treasury obligations). The result is “base income.”

Business Income - Subchapter S

Statutory Reference:  35 ILCS 5/101 to 5/1701

The Illinois Income Tax is imposed on every corporation earning or receiving income in Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal income tax code.

Tax rate – S Corporations pay 1.5 percent Personal Property Tax Replacement Income Tax (replacement tax). S Corporations do not pay regular Illinois income tax. The regular income tax is paid at the shareholder's level. Generally, income from an S corporation is passed on to the shareholders. The shareholders must include this income in their federal adjusted gross income (for individuals) or taxable income (for other taxpayers). This is the starting point for Illinois income tax purposes and where regular income tax is paid.

Tax base – The starting point for the Illinois Small Business Corporation Replacement Tax Return is federal taxable income, which is income minus deductions. Next, the federal taxable income is changed by adding back certain items (e.g., state, municipal, and other interest income excluded from federal taxable income) and subtracting others (e.g., interest income from U.S. Treasury obligations). The result is “base income.”

Business Income - Exempt Organization

Statutory reference: 35 ILCS 5/101 to 5/1701

The Illinois Income Tax is imposed on every exempt organization on its unrelated business taxable income as determined under Section 512 of the Internal Revenue Code, without any deduction for the tax imposed or the standard exemption.

Tax rate – Exempt organizations may be formed as either a corporation or a trust. Therefore, exempt organizations pay both regular income tax and the Personal Property Tax Replacement Income Tax (replacement tax), but the rates differ.

Corporations – Income Tax - 4.8 percent; Replacement Tax - 2.5 percent

Trusts – Income Tax - 3.0 percent; Income Tax - 1.5 percent

Tax base – The starting point for the Illinois Exempt Organization Income and Replacement Tax Return is the unrelated business taxable income or loss after deducting income exempt from tax by reason of the United States or Illinois Constitutions, or by reason of law, statute or treaties of the United States, and adding back any Illinois income tax deducted on the federal return.

SOURCE: Illinois Department of Revenue; http://www.revenue.state.il.us/Businesses/Income/