Form IL-1065, the Illinois Partnership Replacement Tax Return, is filed by partnerships with Illinois base income or loss to calculate the 1.5 percent replacement tax and report each partner’s share of income, deductions, and credits.1Illinois Department of Revenue. What Is the Tax Rate for Businesses, Trusts, and Estates? For calendar-year partnerships, the return is due March 15. In 2026 that date falls on a Sunday, so the deadline shifts to Monday, March 16. An automatic six-month extension to file is available if you have an approved federal extension, but any tax owed is still due by the original March date.
Who Has to File
Any entity classified as a partnership under IRC Section 761(a) with Illinois base income or loss must file.2Illinois Department of Revenue. Partnerships That covers general partnerships, limited partnerships, LLPs, and multi-member LLCs taxed as partnerships federally. Location doesn’t control the question: a partnership headquartered outside Illinois still files if it owns or leases property used in the state, has employees working there, or generates sales from Illinois customers. If you’re liable under the Illinois Income Tax Act or required to file a federal return, you file the matching state return.3Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 5/502 – Returns and Notices
What to Gather Before You Start
Illinois base income starts with federal taxable income, so you can’t complete IL-1065 without the federal numbers in front of you.2Illinois Department of Revenue. Partnerships Pull these together first:
- Your completed federal Form 1065 and its schedules, including ordinary business income, deductions, gross receipts, cost of goods sold, and the balance sheet.
- Your federal Employer Identification Number and your Illinois account number.4Illinois Department of Revenue. IL-1065 Instructions
- Last year’s IL-1065, to carry forward any Illinois net loss or credit balances.
- For every partner who held an interest at any point in the year: legal name, address, taxpayer identification number, and ownership percentage.
- Your NAICS business activity code, the same one used on the federal return.
Current forms and instructions are posted at tax.illinois.gov.5Illinois Department of Revenue. 2025 Partnership Replacement Tax Forms
Calculating Illinois Base Income
Illinois base income isn’t federal taxable income. You start there, then run the Illinois additions and subtractions line by line through the instructions. Typical additions include interest on state and local bonds issued outside Illinois and any bonus depreciation differences between federal and Illinois rules. Typical subtractions include interest on U.S. Treasury obligations.
If the partnership does business both inside and outside Illinois, you don’t tax the full base income. You apportion it using the standard formula, which compares Illinois sales to total sales everywhere. Only the apportioned share is subject to the 1.5 percent replacement tax.1Illinois Department of Revenue. What Is the Tax Rate for Businesses, Trusts, and Estates?
Schedules You’ll Likely Need
The IL-1065 is the cover return. Depending on the partnership’s situation, several schedules get attached to it.
Schedule B: Partner Information
Schedule B is the directory of every partner who held an interest during the year, with legal name, mailing address, and taxpayer identification number for each one.4Illinois Department of Revenue. IL-1065 Instructions The Department uses it to match what the partnership reports against what partners claim on their own returns.
Schedule K-1-P: Partner’s Share
Schedule K-1-P breaks out each partner’s share of income, deductions, credits, and recapture items. Complete one for each partner and give that partner a copy, which they attach to their own Illinois return and use with the Schedule K-1-P(2) instructions to report the items.6Illinois Department of Revenue. What Is the Purpose of Schedule K-1-P?7Illinois Department of Revenue. Schedule K-1-P(2) Partner’s and Shareholder’s Instructions
Schedule NLD: Net Loss Deduction
If the partnership had an Illinois net loss in a prior year and wants to apply it against current income, attach Schedule NLD. For tax years ending on or after December 31, 2021, Illinois net losses can only be carried forward, with a 20-year carryforward period.8Illinois Department of Revenue. Schedule NLD Instructions The loss has to have been reported on a filed return for the loss year. If the IRS later adjusts the loss, report the corrected figure on Schedule NLD.
Schedule 1299-A: Credits and Special Subtractions
Attach Schedule 1299-A if the partnership is claiming Illinois credits or special subtractions. The most common for partnerships is the Research and Development Credit, calculated at 6.5 percent of current-year qualifying expenses above the base-period average.9Illinois Department of Revenue. Schedule 1299-A Tax Subtractions and Credits Credits earned at the entity level flow through to partners on Schedule K-1-P and get claimed on their individual returns.
Nonresident Partners
Illinois generally requires the partnership to withhold tax for nonresident partners. A nonresident partner that is itself a pass-through entity (another partnership, an S corporation, or a trust) can file Form IL-1000-E with the partnership to opt out and pay its own Illinois tax directly.10Illinois Department of Revenue. Certificate of Exemption for Pass-through Withholding Individuals can’t make this election. Keep the signed IL-1000-E in your files; don’t send it to the Department unless asked, and it doesn’t need to be renewed each year.
As an alternative to withholding partner by partner, the partnership can file Form IL-1023-C, a composite return, on behalf of selected nonresident partners. It’s generally meant for nonresidents whose only Illinois income is from the partnership.11Illinois Department of Revenue. IL-1023-C Instructions Including Illinois residents, or partners whose residency status is uncertain, requires a petition filed before the end of the partnership’s tax year. Any partner left off the composite return still has to meet their Illinois filing obligations on their own.
The Pass-Through Entity Tax Election
Illinois offers an elective pass-through entity (PTE) tax, letting the partnership pay Illinois income tax at the entity level instead of pushing it entirely out to the partners. The election is open to all partnerships except publicly traded partnerships under IRC Section 7704.12Illinois Department of Revenue. Pass-through Entity Information It originally had an expiration date, but the legislature removed it.4Illinois Department of Revenue. IL-1065 Instructions
Watch the payment deadline. An electing partnership has to pay the PTE tax in full by the original due date of the return, which is the 15th day of the fourth month after the close of the tax year (April 15 for calendar-year filers). An extension to file does not extend the payment deadline, and missing it triggers penalty and interest. Partners of an electing partnership get a PTE tax credit on their individual Illinois returns.
Filing the Return
You can file IL-1065 electronically through the IRS Modernized e-File (MeF) program using third-party tax software, and attachments and payment can go in the same transmission.13Illinois Department of Revenue. What Are the Electronic Options for Filing and Paying Business Income and Replacement Tax? Paper filers mail the return to the address in the IL-1065 instructions.14Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 5/505 – Time and Place for Filing Returns
The six-month filing extension is automatic if you have an approved federal extension, pushing a calendar-year return to September 15, 2026. Payment is not extended. Any replacement tax, and any PTE tax if you’ve elected it, has to be paid by the original due date.
Paying the Replacement Tax
Three electronic payment options are available:
- MyTax Illinois, through your account at mytax.illinois.gov.
- MeF ACH debit, submitted with the return or as a standalone estimated or extension payment through tax software.
- ACH credit, which has to be set up by calling the Department at 217-782-6257.13Illinois Department of Revenue. What Are the Electronic Options for Filing and Paying Business Income and Replacement Tax?
Credit card payment is not an option for partnership replacement tax.15Illinois Department of Revenue. Make a Payment – Options for Businesses If you’re paying by check or money order, include the correct payment voucher, make it out to the Illinois Department of Revenue, and write your FEIN, the tax year, and the form number on the check.
Fixing a Mistake After Filing
Correct a filed IL-1065 by filing Form IL-1065-X, the Amended Partnership Replacement Tax Return. File a separate IL-1065-X for each tax year you need to amend.16Illinois Department of Revenue. IL-1065-X Instructions
Deadlines depend on what triggered the amendment:
- For a state-initiated change that produces a refund or credit, file within the latest of three years after the return’s due date (including extensions), three years after the original filing, or one year after the tax was paid.
- For a federal change that decreases Illinois tax, file within two years plus 120 days of federal finalization.
- For a federal change that increases Illinois tax, file and pay the additional amount within 120 days of IRS partial agreement or finalization.16Illinois Department of Revenue. IL-1065-X Instructions
Don’t file an amended return based on a federal change until the IRS has finalized it, documented by a signed audit report, account transcript, or refund check. Attach proof of finalization to the IL-1065-X. If different federal adjustments were finalized on different dates, each finalization date gets its own separate amended return.