An Illinois LLC pays a stack of taxes rather than a single one: federal income tax and, for most owners, self-employment tax; a state income tax of 4.95% for individual members or 7% for LLCs taxed as C corporations; an entity-level Personal Property Replacement Tax of 1.5% or 2.5%; sales tax if you sell goods; and payroll taxes if you have employees. The exact mix depends on how your LLC is classified for federal tax purposes, because Illinois automatically adopts whatever election you make with the IRS. Understanding Illinois LLC taxes starts with that classification and works outward from there.
How Federal Classification Sets Your Tax Bill
Every Illinois LLC begins its tax life with a federal election under the IRS “check-the-box” rules. That election decides whether the business is taxed as a disregarded entity, a partnership, an S corporation, or a C corporation. Illinois does not run its own classification system. It follows the IRS, so the federal choice controls state filing too.
Single-Member LLC
A single-member LLC that makes no election is treated as a disregarded entity.1Internal Revenue Service. Single Member Limited Liability Companies The IRS ignores it as a separate taxpayer. You report business income and deductions on Schedule C of your Form 1040, and that net income carries onto your Illinois IL-1040 as part of your adjusted gross income.2Internal Revenue Service. Instructions for Schedule C (Form 1040) There is no separate federal business return, though Illinois still expects the entity to address the Personal Property Replacement Tax discussed below.
Multi-Member LLC
Two or more members default to partnership taxation. The LLC files an informational Form 1065 with the IRS but pays no federal income tax itself.3Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income Each member gets a Schedule K-1 showing their share of income, deductions, and credits, which flows to their personal 1040 and IL-1040.4Internal Revenue Service. Instructions for Form 1065
S Corporation Election
An LLC that files IRS Form 2553 can elect S corporation status if it meets eligibility rules like having only U.S.-resident individual shareholders and a single class of stock.5Internal Revenue Service. About Form 2553, Election by a Small Business Corporation Income still passes through on Schedule K-1, but owners who work in the business must draw a salary subject to payroll taxes. Profits distributed beyond that salary are generally not subject to Social Security and Medicare taxes, which is the main planning reason to elect. The salary must be reasonable compensation for the work you actually perform.6Internal Revenue Service. Publication 15, Employers Tax Guide Setting it artificially low invites the IRS to reclassify distributions as wages and assess back payroll tax plus penalties.
C Corporation Election
An LLC can elect C corporation treatment by filing IRS Form 8832.7Internal Revenue Service. About Form 8832, Entity Classification Election This is the only classification where the entity itself pays federal income tax, filing Form 1120 at the 21% corporate rate. Shareholders then pay tax again on any dividends, the pattern known as double taxation. In exchange, the company can retain earnings without triggering personal tax for the members.
Federal Self-Employment Tax
Self-employment tax catches many new LLC owners off guard because it often runs larger than the income tax bill. If your LLC is taxed as a disregarded entity or partnership, your share of net business income is subject to self-employment tax covering Social Security and Medicare.
For 2026, the combined rate is 15.3% on the first $184,500 of net earnings: 12.4% for Social Security and 2.9% for Medicare.8Social Security Administration. Contribution and Benefit Base Earnings above $184,500 stay subject to the 2.9% Medicare portion with no cap. If your net self-employment income exceeds $200,000 ($250,000 for married couples filing jointly), an additional 0.9% Medicare surtax applies to the amount above that threshold.9Internal Revenue Service. Topic No. 560, Additional Medicare Tax
Half of the self-employment tax is deductible as an adjustment to income on your federal return, which also lowers your Illinois adjusted gross income. This is an above-the-line deduction, so you get it whether or not you itemize.
LLCs taxed as S corporations sidestep most of this. Only the salary portion is subject to payroll taxes, split evenly between employer and employee at 7.65% each. Distributions beyond the salary escape Social Security and Medicare tax, which is why the S election is popular for profitable LLCs where the owner is actively involved. C corporation LLCs also avoid self-employment tax on distributed profits, though they face double taxation instead.
Illinois Income Tax and the Personal Property Replacement Tax
Illinois imposes two state-level taxes on business income: the standard income tax and the Personal Property Replacement Tax (PPRT). Both apply to net income apportioned to Illinois.
Individual Rate for Pass-Through Members
Members of pass-through LLCs (disregarded entities, partnerships, and S corporations) pay the flat Illinois individual rate of 4.95% on their distributive share of business income.10Illinois Department of Revenue. Income Tax Rates Illinois starts with your federal adjusted gross income and applies certain additions and subtractions to arrive at Illinois base income. The 4.95% rate applies across the board with no brackets.
Corporate Rate
An LLC taxed as a C corporation pays the Illinois corporate income tax rate of 7% on net income apportioned to the state.11Illinois Department of Revenue. Taxpayer Answer Center The entity files Form IL-1120 and pays directly. Members owe Illinois individual tax only if the corporation distributes dividends.
Personal Property Replacement Tax
The PPRT is an additional Illinois tax levied at the entity level. Most states have nothing like it. The rate depends on classification:
- C corporations pay 2.5% of net Illinois income, producing a combined state burden of 9.5% when added to the 7% income tax.
- Partnerships and S corporations pay 1.5% of net Illinois income at the entity level on Form IL-1065 or Form IL-1120-ST.12Illinois Department of Revenue. Personal Property Replacement Tax
The entity pays the PPRT, not the individual members. After paying the 1.5%, a partnership or S corporation issues Schedule K-1-P or K-1-T to each member, who then reports their share and pays the 4.95% individual income tax on their IL-1040.12Illinois Department of Revenue. Personal Property Replacement Tax
Non-Resident Member Withholding
If your LLC has any members who live outside Illinois, the entity must withhold state income tax on their share of Illinois income at 4.95%, regardless of whether cash is actually distributed.10Illinois Department of Revenue. Income Tax Rates The LLC remits the withheld amount to the Department of Revenue, and the non-resident member claims a credit when filing their IL-1040. Penalties for failing to withhold fall on the entity.
The Pass-Through Entity Tax Election
Illinois offers an elective pass-through entity (PTE) tax that works around the $10,000 federal cap on state and local tax (SALT) deductions. If you itemize on your federal return, this election can produce federal tax savings at no state-level cost.
Your LLC (taxed as a partnership or S corporation) elects to pay the 4.95% Illinois income tax at the entity level instead of having each member pay individually.13Illinois Department of Revenue. Pub-129, Pass-through Entity Information Because the entity is paying, the tax becomes a deductible business expense for federal purposes, bypassing the $10,000 SALT cap. Each member then receives a refundable credit on their IL-1040 equal to 4.95% of their distributive share.14Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 5/201
The state-level result is a wash. The federal deduction is not. The election is available for tax years ending on or after December 31, 2021, and the federal SALT cap has been extended through 2029. Nonresident members of an electing LLC may not need to file an Illinois individual return at all if their only Illinois income comes from the electing entity and the PTE credit covers their full state liability.13Illinois Department of Revenue. Pub-129, Pass-through Entity Information
Quarterly Estimated Payments
Pass-through LLC members don’t have tax withheld the way W-2 employees do. If you expect to owe more than $1,000 in federal income tax after withholding and credits, the IRS requires quarterly estimated payments.15Taxpayer Advocate Service. Making Estimated Payments Illinois has its own threshold: state estimated payments are required when expected Illinois liability exceeds $1,000 after credits and withholding.16Illinois Department of Revenue. Publication 105, Illinois Estimated Payments Requirements
For individual members, federal and Illinois estimated payments share the same quarterly deadlines: April 15, June 15, September 15, and January 15 of the following year. LLCs taxed as C corporations follow a slightly different state schedule, with the fourth-quarter payment due December 15 rather than January 15.16Illinois Department of Revenue. Publication 105, Illinois Estimated Payments Requirements LLCs that elect PTE treatment must make entity-level estimated payments when the expected PTE liability exceeds $500.
Illinois charges a 2% late-payment penalty for amounts 1 to 30 days late, rising to 10% after 30 days.16Illinois Department of Revenue. Publication 105, Illinois Estimated Payments Requirements You can generally avoid penalties by paying at least 90% of the current year’s tax or 100% of the prior year’s tax in four equal installments.
Sales and Use Tax
If your Illinois LLC sells tangible goods at retail, you must collect and remit sales tax. Professional services such as legal, accounting, and consulting work are generally exempt, though some services tied to tangible property, like repairs, may be taxable. Sales tax is separate from income tax and applies regardless of federal classification.
Before your first taxable sale, register with the Illinois Department of Revenue and obtain an Illinois Business Tax (IBT) number. Sales tax is collected from the customer at checkout, then remitted to IDOR on a monthly or quarterly schedule based on your volume.
Use tax mirrors sales tax. When your LLC buys tangible goods from an out-of-state vendor that doesn’t collect Illinois sales tax, you owe use tax on that purchase at the same combined rate that would have applied to a local purchase. You self-assess and remit.
Illinois stacks local taxes on top of the 6.25% state rate. Municipalities, counties, transit authorities, park districts, and special taxing districts add layers, and the combined rate varies significantly by address, exceeding 10% in parts of Chicago and the surrounding area. IDOR’s MyTax Illinois rate-finder gives the exact combined rate for a specific address.17Illinois Department of Revenue. Sales and Use Taxes Index Sales tax is destination-based, so the rate depends on where the product is delivered or picked up, not where your office is.
Out-of-state sellers face economic nexus rules. As of January 1, 2026, the threshold is $100,000 in cumulative gross receipts from sales to Illinois purchasers during the prior 12-month period. Illinois eliminated the prior 200-transaction alternative, leaving only the dollar test.18Illinois Department of Revenue. FY 2026-12, Destination-Based Retailers Occupation Tax Changes Once you cross it, you must register and begin collecting on future sales.
Payroll Taxes If You Have Employees
An LLC that hires employees, including a member drawing a salary under an S corporation election, takes on payroll obligations administered by two separate state agencies.
State Income Tax Withholding
You must withhold Illinois income tax from every employee’s wages at 4.95%, adjusted for the allowances claimed on the employee’s Illinois W-4.19Illinois Department of Revenue. IL-700-T, 2026 Illinois Withholding Tax Tables How often you remit depends on the total amount withheld: large employers deposit semi-weekly, smaller operations monthly or quarterly. Withholding is reported on Form IL-941 for each period. Illinois does not require a separate annual reconciliation return.20Illinois Department of Revenue. 2026 Form IL-941 Instructions
Unemployment Insurance
The Illinois Department of Employment Security (IDES) administers unemployment insurance contributions. This tax is paid entirely by the employer and cannot be deducted from employee wages. New employers get a standard rate for their first three years. After that, IDES calculates an experience rate: the more former employees who collect benefits, the higher your rate.21Illinois Department of Employment Security. Annual Employer Contribution Tax Rates Register separately with IDES and report contributions electronically each quarter. Misclassifying employees as independent contractors is one of the more expensive mistakes here, drawing back-tax assessments, penalties, and interest from both IDES and the Department of Revenue.
Annual Report
Separate from every tax above, your LLC must file an Annual Report with the Illinois Secretary of State to keep its legal existence. This is an administrative filing rather than a tax return, but missing it can unravel your liability protection.
The report is due before the first day of the month in which the LLC was originally formed. If you formed on August 15, the report is due by August 1 each subsequent year. The filing fee is $75.22Illinois General Assembly. Illinois Compiled Statutes 805 ILCS 180 Limited Liability Company Act – Article 50 Fees and Other Matters The report confirms registered agent name and address, principal place of business, and the names and addresses of managers or members.
Miss the deadline and the Secretary of State sends a delinquency notice. Ignore that, and the state will administratively dissolve the LLC, which strips your authority to do business in Illinois and eliminates the personal liability shield the LLC was formed to provide. Reinstatement requires filing overdue reports, paying accumulated fees, and potentially late penalties. Keeping current with a $75 filing costs far less than restoring a dissolved entity.