Illinois Corporation Taxes: What Your Business Needs to Pay

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State agency: Illinois Department of Revenue (IDOR)

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State tax rate: 9.5% combined (7% corporate income tax + 2.5% Personal Property Replacement Tax) for C corporations; 1.5% replacement tax only for S corporations

Illinois corporations pay taxes to both the state and federal governments. At the state level, C corporations owe a 7% corporate income tax plus a 2.5% Personal Property Replacement Tax — a combined 9.5% rate on net income. S corporations are treated differently: they skip the corporate income tax but pay a 1.5% replacement tax instead.

The 9.5% combined rate puts Illinois among the higher state corporate tax burdens in the country — something worth factoring in when you're planning your business finances.

Illinois imposes a flat 7% corporate income tax on the net income of C corporations doing business in the state. The starting point for calculating what you owe is your federal taxable income, which Illinois then adjusts to arrive at your Illinois "base income" under the Illinois Income Tax Act.

You report and pay this tax on Form IL-1120, the Corporation Income and Replacement Tax Return, filed with the Illinois Department of Revenue. Illinois uses a flat rate rather than a graduated scale, so the 7% applies to all taxable net income regardless of how much your business earns.

On top of the 7% income tax, C corporations in Illinois also pay a 2.5% Personal Property Replacement Tax (PPRT) on net income. This tax is collected by the state and distributed to local governments — it replaced the local personal property taxes that Illinois eliminated in 1979.

The PPRT is calculated on the same net income base as the corporate income tax and is paid together with your state income tax filing. That's how the combined rate reaches 9.5% for C corporations. A tax professional can help you figure out how to calculate and report both taxes correctly on Form IL-1120.

The tax treatment for Illinois corporations depends on whether your business is structured as a C corporation or an S corporation — and the difference is significant.

C corporation

A C corporation pays the full 9.5% combined state rate: 7% corporate income tax plus 2.5% PPRT on net income. The business pays tax at the entity level, and shareholders pay tax again on any dividends they receive — this is the double-taxation structure C corps are known for. Federal corporate income tax applies on top of the state rate.

S corporation

An S corporation does not pay Illinois corporate income tax. Instead, income passes through to shareholders, who report it on their individual returns. The S corporation itself pays a 1.5% Personal Property Replacement Tax on net income. Illinois S corporations may also elect the pass-through entity (PTE) tax for tax years ending on or after December 31, 2021 — a tax professional can help you figure out whether that election makes sense for your situation.

Illinois levies a franchise tax on corporations for the right to exist as a legal entity in the state. Both domestic and foreign corporations doing business in Illinois are subject to this tax. The franchise tax is separate from the income tax and is administered by the Illinois Secretary of State rather than the Department of Revenue.

Illinois attempted to phase out the franchise tax, but the repeal was reversed — the tax remains in effect. If you're forming or already running a corporation in Illinois, check the current franchise tax requirements with the Illinois Secretary of State or a tax professional, since the rules around this tax have changed in recent years.

Illinois has a state sales tax, and the rate varies by city and county. If your corporation sells taxable goods or services, you'll need to collect and remit sales tax to the Illinois Department of Revenue. The base state rate is 6.25%, but local additions can push the effective rate higher depending on where your business operates.

Use tax applies when your corporation buys taxable goods from out-of-state sellers without paying Illinois sales tax — you owe use tax on those purchases at the same rate. Both sales and use tax are reported through the Illinois Department of Revenue. A tax professional can help you figure out your specific obligations based on what you sell and where.

Illinois corporations also owe federal taxes, and the structure depends on whether you're a C corp or S corp. Federal obligations are separate from — and in addition to — everything Illinois collects.

C corporation federal taxes

C corporations pay a flat 21% federal corporate income tax on net income. Most C corporations also need to make quarterly estimated tax payments to the IRS throughout the year rather than paying the full amount at filing. If your corporation has employees, you'll also handle federal payroll taxes — Social Security, Medicare, and federal unemployment. A tax professional can help you set up the right payment schedule.

S corporation federal taxes

S corporations don't pay federal corporate income tax at the entity level. Income and losses pass through to shareholders, who report them on their individual federal returns. Shareholders who work in the business must pay themselves a reasonable salary and handle payroll taxes on that salary. Distributions above the salary amount are not subject to self-employment tax, which is one reason the S corp election appeals to many business owners.