Illinois LLC Taxes

How Is an LLC Taxed in Illinois?

Taxation in Illinois isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay taxes on any personal income they take as distributions.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or self-employment taxes on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Illinois to help you ensure your LLC navigates them effectively.

Illinois Local Taxes

The local laws and tax regulations differ greatly between different localities in Illinois, where there are currently a number of unique taxes in place at a local level.

Below is a list of tax types that your city or county may impose:

Sales and Use Taxes

In Illinois, sales and use tax is levied at a general rate of 6.25% across the state for the privilege of selling products or services to Illinois-based customers. However, since local governments are able to impose their own additional rates up to 4.75%, the total sales tax rate your business may need to pay can vary up to a maximum of 11%, depending on where it’s based.

While the average combined rate of state and local sales tax is 8.82%, local sales taxes can create large regional variations across different areas in Illinois. For example, local sales tax is levied at a rate of 4% in Chicago, whereas Joliet adds only an additional 2.5%. In contrast, places like Addieville do not impose any local sales tax at all.

Your LLC must collect these varying local sales taxes, along with the state sales tax, and submit them to the relevant government bodies.

Note: To get a better idea of the sales and use tax rate that’s in effect in your area, use the Illinois Department of Revenue’s Tax Rate Finder.

Property Tax

Understanding property tax is crucial for both individual and business owners with real property, as it has a large impact on their overall tax obligations. As a tax that is levied at a local level, the amount your LLC will pay in property taxes is based on two factors:

• The equalized assessed value (EAV) of your property, and
• The amount of money needed by your local taxing district for their annual budget.

Local officials in your county will assess your property in order to establish a tax base — this ensures that the tax burden is fairly spread across all real property owners in the locality. Taxes are then assessed based on the property’s value on January 1st for the current tax year and are paid in the following year.

Note: The Illinois Department of Revenue provides a much more in-depth look into how property taxes work in its Overview of Property Tax report.

Other Local Taxes

There are a number of specific taxes that local authorities impose in Illinois. These taxes, while varying in nature and application, play a crucial role in influencing your LLC’s total tax bill, with some of the most common ones including:

• Automobile Renting Occupation & Use Tax (ART)
• County Cannabis Retailers’ Occupation Tax
• County Motor Fuel Tax
• Gaming Taxes
• Motor Fuel Tax (IDOT)

Note: You can find a full list of these taxes distributed to local governments in this state on the Illinois Department of Revenue (IDOR) website.

Illinois State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Illinois. 

Income Taxes

This group of taxes refers to the charges imposed by the state on the earnings of individuals and entities operating within Illinois. As an LLC based in this state, there are two key types of state income tax to be aware of:

• Personal Income Tax: In Illinois, this tax is levied at a flat rate of 4.95% on the amount of income each member of your LLC obtains from the business’s profits. Since the LLC itself is not subject to direct taxation, each member must file Form IL-1040 to report their individual income to the state.
• Corporate Income Tax: Similarly, LLCs that elect to be structured as C Corps must pay a corporate income tax at a flat rate of 9.50% on the business’s total net income. To submit your state income tax return, your LLC will need to file Form IL-1120 with the Illinois Department of Revenue.

Understanding the nuances of your state income taxes is crucial for individuals and corporations as they form a central part of your statewide tax responsibilities.

Sales-Related Taxes

In Illinois, sales tax refers to a group of taxes imposed on the sale and use of goods and services within the state. These taxes follow one of the three following tax rate structures, depending on the good/service being sold:

• General merchandise: A flat tax rate of 6.50% imposed on the sale of most tangible personal property, such as soft drinks and candy, prepared food (i.e., food purchased at a restaurant), and grooming and hygiene products.
• Qualifying food, drugs, and medical appliances: A flat tax rate of 1% imposed on the sale of unprepared food typically sold in grocery stores and medicines or medical appliances.
• Items that need to be titled or registered: A flat tax rate of 6.25% imposed on the sale of vehicles such as ATVs, mobile homes, watercraft, and aircraft.

On top of this, local sales tax rates can increase statewide sales tax by up to 4.75% depending on the locality your LLC is based in. That being said, certain transactions are exempt from the requirement to pay local or state sales tax, such as sales:

• To state, local, and federal governments.
• To not-for-profit organizations that are exclusively charitable, religious, or educational.
• Of newspapers and magazines.
• To out-of-state buyers, with specific conditions for motor vehicles or trailers.

This list only contains some of the most common exemptions — to ensure your LLC’s compliance, regardless of what it sells, be sure to consult an accountant who can walk you through the requirements.

Note: If your business loans to sell taxable goods or services, you must obtain a sales tax permit online through the MyTax Illinois platform in order to pay sales tax. 

Personal Property Replacement Tax

After local governments lost the power to tax businesses for their personal property, the Illinois state government designed the Personal Property Replacement Tax (PPRT) to compensate local authorities for this lost revenue. PPRT is applied to your LLC’s net income at a rate that varies depending on your tax structure:

Corporations, partnerships (including LLCs treated as partnerships), trusts, S corporations, and public utilities are required to pay these taxes.

• C Corporations: LLCs taxed as C corps are required to pay PPRT at a rate of 2.5% on their net Illinois income. This is submitted as part of your Illinois corporate income tax return on Form IL-1120.
• Partnerships, Trusts, and S Corporations: LLCs with a default tax structure or those that have elected to be taxed as an S corporation must pay PPRT at a rate of 1.5% net Illinois income. PPRS will be paid as part of your income tax return, with partnerships using Form IL-1065, trusts using Form IL-1041, and S Corporations using Form IL-1120-ST.

This tax is due annually by the 15th day of the third or fourth month following the end of the tax year, depending on the tax year end date of the business filing the return. 

Excise Taxes

In Illinois, there are a number of statewide taxes and charges levied on LLCs for the privilege of engaging in certain specific sectors and business activities. The state has authorized a number of these business privilege taxes, with some of the most common ones being:

• ​Cannabis Cultivation Privilege Tax: Cultivators selling cannabis must pay a 7% tax on sales.
• Cannabis Purchaser Excise Tax​: A gradual tax on adult-use cannabis purchases that varies between 10% and 20% depending on THC content and product type.
• Cigarette Machine Operators’ Occupation Tax: A tax of $0.149 per cigarette manufactured in a cigarette machine operator’s facility and an annual fee of $250 per operating location.
• Coin-operated Amusement Device and Redemption Machine Tax: An annual fee of $30 per device.

You can find a full list of these excise taxes, as well as more information on their specifics, on the Illinois Department of Revenue (IDOR) website.

Employer Taxes

Your LLC will be required to pay this group of taxes if it employs any workers. In Illinois, there are two main employer taxes to be aware of at a state level: withholding tax and unemployment insurance tax.

Unemployment Insurance Tax

The first of these important taxes for employers in Illinois is the unemployment insurance (UI) tax. This is a mandatory contribution your LLC will need to make toward the state’s unemployment insurance fund if it has any employees.

In Illinois, the UI tax your business owes is determined based on each employee’s taxable wage base. This refers to a cap on the wages per employee that are subject to UI taxation. For the current tax year, this taxable wage base is established at $13,271 per employee.

In addition to the size of your taxable payroll, your tax bill can vary depending on the rate at which you pay UI insurance. Your UI tax rate is generally dictated by how long you’ve been paying wages:

• New Employers: Businesses with a history of wage payments that are shorter than three years are required to pay UI tax at an entry rate of 3.95%.
• Experience-rated Employers: If your business has three or more years of experience as an employer, its UI contribution rate will vary between 0.30% and 8.10%, depending on its benefit ratio. 

Withholding Tax

The second key tax you’ll need to pay as an employer in Illinois is withholding tax. This isn’t a tax that comes out of your business’s profits; instead, it’s an amount you’ll deduct from your employees’ salaries and then pay to the government.

While you won’t be the one paying for this tax, it’s still your responsibility as the employer to handle it on behalf of your workers. When calculating the correct amount to withhold, you’ll need to keep 4.95% of each employee’s income over the exemption allowance of $2,425. 

In order to file your withholding taxes, your business will first need to register with MyTax Illinois.

Note: For more guidance on figuring out how much to withhold, we recommend checking out the Illinois Department of Revenue’s Booklet IL-700-T on withholding taxes.

Other Miscellaneous Taxes and Fees

In addition to those explored above, there are a number of other miscellaneous taxes and fees in Illinois that are unique to certain services and activities. These taxes, though less commonly discussed, can play a significant role in specific sectors. They include:

• Illinois Telecommunications Access Corporation (ITAC) Assessment
• ​Prepaid Wireless E911 Surcharge
• Live Adult Entertainment Facility Surcharge
• Real Estate Transfer Tax

The Illinois Department of Revenue website provides a more in-depth look into the full list of these other miscellaneous taxes your business may need to pay. 

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as a separate entity from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income taxes on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied on your federal income tax return.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employment Tax

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Illinois

Below, we’ve outlined the general process an LLC in Illinois will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you’ve gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it’s a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State and Local Tax Returns: Depending on the specific tax, the filing requirements can vary. However, you should be able to file most of your taxes online using MyTax Illinois.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Illinois LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Illinois LLC Annual Report

The Illinois LLC annual report is a mandatory yearly filing that your business will need to submit to the state in order to keep your LLC in good standing and compliant with Illinois state regulations. In order to fill out this report, you’ll need to have the following pieces of information on hand:

• Your business file number (available from the Illinois Business Database).
• Business name, address, and the state or country of formation.
• Date of formation or registration in Illinois.
• Names and addresses of officers/directors or members/managers.

For Illinois LLCs, the annual report is due each year before the first day of the anniversary month of your business’s formation, alongside a submission fee of $75.

Note: While you can file your annual report by mail, online filing is available and easier for most LLCs. It can be done via the Business Services page on the Illinois Secretary of State website.

Licensure and Tax Requirements

In Illinois, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your business plans to sell tangible personal property in Illinois, obtaining the Retailer’s Occupation Tax License from the Illinois Department of Revenue is a legal necessity for business operation as it facilitates the collection of Illinois sales tax by the government.
• Professional Licenses: Certain professions in Illinois, such as accounting, engineering, and cosmetology, mandate obtaining specific professional licenses. These licenses are administered by the Illinois Department of Financial and Professional Regulation (IDFPR), which also provides a detailed list of regulated professions along with their respective licensing requirements on its website.
• Environmental Permits: Businesses with potential environmental impacts, like pollutant emissions or waste management, must acquire specific permits from the Illinois Environmental Protection Agency (IEPA). Activities such as waste disposal or operating large manufacturing facilities typically necessitate compliance with IEPA regulations to ensure environmental protection.