If you live outside Illinois but earned money tied to the state, the Illinois nonresident income tax applies at a flat rate of 4.95% on the Illinois-sourced portion of your income, and you report it on Form IL-1040 with Schedule NR attached.1Illinois Department of Revenue. Income Tax Rates Illinois uses source-based taxation, so wages earned inside the state, profits from Illinois customers, and rent from Illinois property can all be pulled into the state’s tax base regardless of where you live.
Who Has to File
You are a nonresident for Illinois purposes if your permanent home was outside Illinois for the entire tax year. Being physically present in Illinois for work or business does not make you a resident; what matters is where your fixed, permanent home sits and where you intend to return.
A nonresident must file Form IL-1040 with Schedule NR in either of two situations. The first is when your Illinois base income from Schedule NR exceeds your Illinois exemption allowance, meaning you actually owe tax. The second is when Illinois tax was withheld from your pay in error and you want it refunded, which commonly happens when an employer withholds Illinois tax even though you worked entirely from another state.
The personal exemption allowance for tax year 2026 is $2,925 per person.2Illinois Department of Revenue. What Is the Illinois Personal Exemption Allowance? For nonresidents, that allowance is prorated based on how much of your total income comes from Illinois, so the effective exemption shrinks when Illinois income is only a slice of what you earned everywhere. If federal adjusted gross income tops $500,000 on a joint return, or $250,000 on any other filing status, the exemption goes away entirely.3Illinois Department of Revenue. FY 2026-15 – What’s New for Illinois Income Taxes
Which Income Illinois Can Tax
Illinois has specific sourcing rules for each category of income. Items not specifically allocated to Illinois under those rules are generally not taxable by the state.4Illinois General Assembly. 35 ILCS 5/301 – Allocation and Apportionment of Base Income
Wages and the 30-Day Rule
Wages are sourced to Illinois based on where you were physically standing when you did the work. Two weeks at a Chicago office and the rest of the year in Indiana means only two weeks of pay counts as Illinois income.
A key relief provision protects nonresident employees whose work is not localized in Illinois: they are not subject to Illinois tax unless they work in the state for more than 30 days during the year.5Illinois Department of Revenue. Publication 130 – Who Is Required to Withhold Illinois Income Tax Stay under 30 days and your employer is not required to withhold. Cross the line, and compensation for all days worked in Illinois becomes taxable, computed as total compensation times the ratio of Illinois working days to total working days.
The 30-day threshold does not apply if your job is localized in Illinois because all or substantially all of your work happens there. In that case you are taxable from day one, no matter where you live.
Remote Workers
Illinois uses the physical-presence standard for remote work. Work from a home office in Missouri for an Illinois-based company and your wages are sourced to Missouri; your employer generally does not need to withhold Illinois tax.5Illinois Department of Revenue. Publication 130 – Who Is Required to Withhold Illinois Income Tax The flip side also holds: if you live elsewhere but work remotely from inside Illinois for more than 30 days, that income is Illinois-sourced.
Business Income
Nonresident sole proprietors, partners, and S corporation shareholders apportion business income when operations span multiple states. Illinois uses a single sales factor formula, so the apportionment percentage equals the share of your sales attributed to Illinois customers.6Illinois General Assembly. Illinois Code 35 ILCS 5/304 – Business Income of Persons Other Than Residents If 20% of your sales go to Illinois buyers, roughly 20% of your business income is taxable at 4.95%. A large Illinois customer base can pull significant income into the state even with no physical operations there.
Rental Income and Capital Gains
Rent from property physically located in Illinois is fully taxable by the state, no matter where you live. Royalties tied to Illinois property and capital gains from selling Illinois real estate are sourced the same way.
Capital gains on intangible assets like stocks, bonds, and mutual funds work differently. For nonresidents, those gains are generally sourced to your state of domicile, so Illinois will not tax the sale of stock in a Chicago-headquartered company held by an out-of-state investor.4Illinois General Assembly. 35 ILCS 5/301 – Allocation and Apportionment of Base Income
Retirement Income
Social Security benefits, pension distributions, 401(k) withdrawals, and IRA distributions are all subtracted from Illinois base income.7Illinois Department of Revenue. Additions and Subtractions for Individual Income Tax That subtraction flows through Schedule NR for nonresidents too. If a pension from a former Illinois employer is your only Illinois-connected income, you likely owe nothing.
Reciprocal Agreements With Neighboring States
Illinois has reciprocal tax agreements with Iowa, Kentucky, Michigan, and Wisconsin.5Illinois Department of Revenue. Publication 130 – Who Is Required to Withhold Illinois Income Tax If you live in one of those four states and earn wages in Illinois, you owe tax on those wages only to your home state.
To stop Illinois withholding, file Form IL-W-5-NR (Employee’s Statement of Nonresidence in Illinois) with your employer. The form directs the employer to stop withholding Illinois tax and, if your home state requires it, to withhold for your state of residence instead.8Illinois General Assembly. 86 Illinois Administrative Code 100.7120 – Exempt Withholding Under Reciprocal Agreements
Reciprocity covers only wages, salaries, and commissions. Business income, rental income, or other non-wage income from Illinois sources is still taxable by Illinois and still requires a nonresident return. And if Illinois tax was withheld from your pay before you filed IL-W-5-NR, you file IL-1040 with Schedule NR to recover it.9Illinois Department of Revenue. Filing Requirements
Military Servicemembers and Spouses
Under the Servicemembers Civil Relief Act, military pay is taxable only in the servicemember’s state of legal domicile, not the state where they are stationed.10Office of the Law Revision Counsel. 50 USC 4001 – Residence for Tax Purposes An active-duty servicemember domiciled in Texas but stationed at Scott Air Force Base pays no Illinois income tax on military compensation.
Spouses get similar protection. A spouse in Illinois solely to accompany the servicemember can keep domicile in their home state, and amendments made by the Veterans Auto and Education Improvement Act let spouses elect to use the servicemember’s state of domicile for tax purposes even if the spouse never lived there. Illinois employers should not withhold from qualifying military spouses’ wages.5Illinois Department of Revenue. Publication 130 – Who Is Required to Withhold Illinois Income Tax
Non-military income sourced to Illinois is still taxable. A side business with Illinois customers or a rental property in the state falls outside the federal exemption.
How the Return Is Calculated
Schedule NR does the sourcing work. In Column A you enter federal amounts for each income category exactly as reported on your federal return. In Column B you enter only the portion sourced to Illinois: Illinois wages go in, home-state wages do not. Illinois-specific additions and subtractions get applied, including adding back state income taxes deducted federally and subtracting exempt retirement income.
Illinois base income divided by total base income produces an apportionment fraction. That ratio prorates your personal exemption and drives the share of income subject to Illinois tax. The final Illinois taxable income is multiplied by 4.95%, and the result flows to Form IL-1040, which is the return you actually file.11Illinois Department of Revenue. 2025 IL-1040 Schedule NR Instructions Most commercial tax software handles the mechanics once you flag nonresident status and identify Illinois-sourced items.
Deadlines, Extensions, and Estimated Payments
The Illinois filing deadline is April 15 following the close of the tax year, shifting to the next business day when April 15 falls on a weekend or holiday.12Illinois Department of Revenue. When Is My Individual Income Tax Return Due and Where Do I Mail It?
Illinois grants an automatic six-month extension to file, pushing the deadline to October 15. No separate extension form is required. If your federal extension runs longer than six months, Illinois automatically matches it.13Illinois Department of Revenue. Due Date/Extension to File Income Tax Return The extension gives you more time to file, not more time to pay. Estimate what you owe and pay it by April 15 to avoid penalties and interest.
If your Illinois liability, after withholding and credits, will exceed $1,000, you owe quarterly estimated tax payments.14Illinois Department of Revenue. IL-1040-ES Estimated Income Tax Payments for Individuals This commonly affects nonresidents with Illinois rental or business income where no employer is withholding on their behalf. To avoid an underpayment penalty, pay the lesser of 90% of the current year’s liability or 100% of last year’s, spread across four equal installments.15Illinois Department of Revenue. IL-2210 Computation of Penalties for Individuals Quarterly due dates track the federal schedule: April 15, June 15, September 15, and January 15 of the following year.
Penalties for Filing or Paying Late
Illinois imposes separate penalties for late filing and late payment, and they can stack.
- Late filing: 2% of the tax due, capped at $250. If you still have not filed within 30 days after receiving a nonfiling notice, an additional penalty applies equal to the greater of $250 or 2% of the tax shown due, up to $5,000.
- Late payment, 1 to 30 days late: 2% of the unpaid tax.
- Late payment, 31 or more days late: 10% of the unpaid tax.
- Post-audit assessments: 15% of the unpaid amount, rising to 20% if you do not pay within 30 days of the audit findings.
Interest accrues on top of the penalties at a daily rate tied to the federal underpayment rate.16Illinois Department of Revenue. Pub-103 – Penalties and Interest for Illinois Taxes Even with an extension in place, pay what you owe by April 15; the late-payment penalty starts modest and jumps sharply after 30 days.
Avoiding Double Tax on the Same Income
When you earn Illinois-sourced income and live somewhere else, both states have a claim. Relief comes from your home state, not Illinois.
Illinois does not give nonresidents a credit for taxes paid to their home state. Schedule CR, which handles credits for taxes paid to other states, is limited to Illinois residents and part-year residents.17Illinois Department of Revenue. IL-1040 Schedule CR Instructions As a nonresident, you pay Illinois on your Illinois income and then claim a credit on your home-state return for the Illinois tax paid on that same income. That credit is typically limited to the lesser of what you actually paid Illinois or what your home state would have charged. If your home state’s rate is below 4.95%, the credit covers the whole home-state bill on that income; if it is higher, you pay the difference at home. Either way, the same dollar should not be taxed at full rate twice.