Illinois Income Tax for Individuals and Businesses: IL-1040, PTE and Replacement Tax

Illinois income tax is a flat tax that starts from your federal return, which makes it simpler than most states but full of traps for people who move across borders. If you live in Aurora, Naperville or Batavia, work for an Indian or Canadian parent, or run an S corporation or LLC in the Fox Valley, you deal with Form IL-1040 for yourself and, for a business, the replacement tax and the optional pass-through entity (PTE) tax. This guide explains who files, how the return works, and what changes if you arrive from India or Canada during the year.

Illinois income tax at a glance

Who must file an Illinois return?

• Residents file Form IL-1040 if they had to file a federal return, or their Illinois base income exceeds the exemption allowance. An Illinois resident is domiciled in Illinois for the entire year; domicile is where you live and intend to return after temporary absences.
• Part-year residents and nonresidents file Form IL-1040 and Schedule NR if they had Illinois income or want a refund of tax withheld. A part-year resident is taxed on everything received while a resident and on Illinois-source income received while a nonresident.
• Nonresident aliens whose income is taxed federally file Form IL-1040 and attach a copy of the federal Form 1040-NR.
• Residents of Iowa, Kentucky, Michigan and Wisconsin who work in Illinois generally pay no Illinois tax on wages under reciprocal agreements; they file only for other Illinois income or a refund.
• Students have no special exemption. See our students and scholars guide.

How to file Form IL-1040, step by step

1. Fix your residency status for each part of the year using domicile, not just where you spent the most days.
2. Start with your federal adjusted gross income. Illinois starts from the AGI on your federal return.
3. Add and subtract. Schedule M covers additions such as federally tax-exempt interest and subtractions such as federally taxed Social Security and certain retirement income (Line 5; see Publication 120).
4. Claim the exemption allowance. The allowance is $2,850 for 2025 and is lost above the AGI limits.
5. Compute tax at 4.95%. Nonresidents and part-year residents complete Schedule NR to find the Illinois portion.
6. Claim credits. Schedule CR gives a credit for income tax paid to other states while you were a resident. The Illinois EITC, Child Tax Credit (40% of the Illinois EITC for 2025), property tax credit and education expense credit are separate. No credit is allowed for tax paid to foreign countries.
7. Attach Schedule IL-WIT and your W-2s and 1099s for the withholding you claim.
8. File. You can use MyTax Illinois, a preparer, or software. Pay what you owe by April 15; for an extension, use Form IL-505-I to pay.
9. For the first Illinois return: you cannot use MyTax Illinois to file. You need an Illinois driver's license or ID to file through a preparer or software, or you file on paper. A first-time filer's refund comes as a paper check.

Illinois income tax for businesses

Business income tax returns cannot be filed in MyTax Illinois; they go through approved software and the IRS Modernized e-File program. Register the business first with Form REG-1 at MyTax Illinois, covered in the sales tax guide.

Nonresident owners. Partnerships, S corporations and trusts must make a pass-through withholding payment on behalf of nonresident owners. That matters if an owner in Mumbai or Toronto holds an interest in an Illinois LLC.

PTE tax. Partnerships (other than publicly traded) and S corporations may elect to pay 4.95% of net income for tax years ending on or after December 31, 2021. Each owner gets a credit equal to 4.95% of the distributive share. Partnerships that expect replacement tax and PTE tax above $500 pay estimates on the 15th day of the 4th, 6th, 9th and 12th months. Whether the election saves federal tax depends on the federal state and local tax limit, which is $40,000 for 2025 with a phase-down for high earners, so run the numbers first.

Documents you need

• Federal return and all schedules, W-2s, 1099s and Schedule K-1s
• Illinois driver's license or ID number (first-time filers)
• Property tax bill, education expense receipts, and dependent SSNs or ITINs
• Date you moved to or from Illinois and records of domicile
• Pass-through entity K-1-P forms and withholding statements

Deadlines and penalties

The 2025 IL-1040 and tax were due April 15, 2026, with an automatic extension to October 15, 2026 to file only. Estimated payments for 2026 are due April 15, June 15, September 15, 2026 and January 15, 2027 if you expect to owe more than $1,000. IDOR charges a late-filing penalty, a late-payment penalty, an estimated-tax underpayment penalty and interest; see IDOR Publication 103 for amounts. For 2026 returns the main dates are April 15, 2027 and October 15, 2027. Our Illinois compliance calendar lists the business dates.

India, Canada and Illinois

Illinois does not allow a credit for taxes paid to foreign countries, so relief for Indian or Canadian tax comes only from the federal foreign tax credit, which lowers federal tax but not your Illinois tax. For the federal side see our first-year return guide.

Worked examples

Sanjay and Kavya, Aurora, joint federal return. Illinois base income is $210,000, so the exemption is $5,700 for two. Net income is $204,300 and tax is $10,113 (4.95%). Illinois withholding on Sanjay's wages is credited on Schedule IL-WIT.

Neha, Mississauga to Aurora on July 1, 2025. She files IL-1040 with Schedule NR as a part-year resident. Her Canadian wages before July 1 are not Illinois income unless Illinois-sourced; income received after she became an Illinois resident is taxed no matter where it comes from.

An Aurora S corporation with $200,000 of net income. Replacement tax is about $3,000 (1.5%). If it elects PTE tax, the entity pays about $9,900 (4.95%) and the owners claim equal credits on their IL-1040s.

Mistakes to avoid

• Assuming days in Illinois alone decide residency.
• Claiming Schedule CR for tax paid to India or Canada.
• Forgetting Schedule NR in the arrival or departure year.
• Electing PTE tax without running the federal effect.
• Missing the IL-505-I payment on extension.

How we can help

Our Aurora, Illinois firm prepares IL-1040 and Schedule NR returns, pass-through entity returns, PTE elections and estimated payments, and coordinates with your Indian CA or Canadian CPA. See our business tax returns and planning and individual returns for newcomers and NRIs services, or the Aurora local guide.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.