Several Illinois tax changes take effect across 2025 and into 2026, though the state’s flat 4.95% individual income tax rate is not one of them. What did change: the personal exemption formula, a new cap on corporate loss carryovers, a tiered sports wagering tax with a new per-bet fee, another automatic motor fuel tax increase, and the repeal of the statewide grocery tax paired with new authority for cities and counties to impose their own.
Personal Exemption for 2025
Illinois taxes individual income at a flat 4.95% of net income, and your net income is base income minus the personal exemption, so the exemption amount is what actually moves your bill.1Illinois Department of Revenue. Individual Income Tax (Sole Proprietorships)
Under the updated version of 35 ILCS 5/204, the exemption for tax years ending on or after December 31, 2024 through December 31, 2028 starts from a base of $2,050 plus a cost-of-living adjustment tied to the Consumer Price Index increase since 2011.2Illinois General Assembly. Illinois Code 35 ILCS 5/204 – Standard Exemption For 2025, the formula produces an exemption of $2,850 per person.3Illinois Department of Revenue. 2025 IL-1040 Instructions The CPI piece will move the number year to year, but the $2,050 base is locked in through 2028.
One threshold catches higher earners off guard: the personal exemption disappears entirely if your adjusted gross income exceeds $250,000, or $500,000 for married couples filing jointly.2Illinois General Assembly. Illinois Code 35 ILCS 5/204 – Standard Exemption Above those numbers, the CPI adjustment doesn’t matter. You get zero.
Corporate Net Loss Deduction Capped at $500,000
Illinois imposes a 7% corporate income tax, plus a 2.5% personal property replacement tax on C-corporations, for a combined effective rate of 9.5%.4Illinois Department of Revenue. Income Tax Rates
Under 35 ILCS 5/207, corporations can normally carry forward net losses from prior years to offset current taxable income. For any tax year ending on or after December 31, 2024 and before December 31, 2027, that carryover deduction is capped at $500,000.5Illinois General Assembly. Illinois Code 35 ILCS 5/207 – Net Losses Losses above the cap don’t disappear; they carry forward to future tax years until they can be absorbed within the limit or the cap expires.
The cap applies to C-corporations. S-corporations pass income through to individual owners and aren’t affected the same way. If your business planned to deploy a large accumulated loss against a strong 2025 or 2026, that benefit now stretches across multiple years.
Sports Wagering Tax: Tiers Plus a Per-Bet Fee
Illinois replaced its flat 15% tax on sports betting revenue with a progressive tiered structure effective July 1, 2024. The tax applies to a licensee’s adjusted gross sports wagering receipts, which is what the sportsbook keeps after paying out winners. Rates work like income tax brackets:6FindLaw. Illinois Statutes Chapter 230 Gaming 45/25-90
- First $30 million: 20%
- $30 million to $50 million: 25%
- $50 million to $100 million: 30%
- $100 million to $200 million: 35%
- Over $200 million: 40%
The rates apply to both online and in-person wagering. A sportsbook with $60 million in adjusted gross receipts pays 20% on the first $30 million, 25% on the next $20 million, and 30% on the remaining $10 million.
Starting July 1, 2025, the legislature added a separate per-wager privilege tax on top of the percentage rates. Online sportsbooks pay $0.25 per wager for the first 20 million combined wagers in a year, and $0.50 per wager after that.7Illinois Gaming Board. FAQs on New Statutory Sports Wager Tax The per-bet fee is in addition to the receipts tax, not a replacement for it.
Individual bettors don’t pay these taxes directly, but operators typically pass the cost through in less favorable odds and reduced promotions. Illinois gambling winnings remain taxable as income on your state return.
Motor Fuel Tax Rose Again July 1, 2025
Illinois law builds automatic annual increases into its motor fuel tax. Every July 1, the Department of Revenue adjusts the per-gallon rate by the percentage increase in the Consumer Price Index for All Urban Consumers over the prior 12-month period ending in March.8Illinois General Assembly. Illinois Code 35 ILCS 505/2 No legislative vote is required; the increase happens whenever inflation is positive.
Following the July 1, 2025 adjustment, the state gasoline tax rose to $0.483 per gallon, up from $0.47.9Illinois Department of Revenue. FY 2025-23, Change in the Motor Fuel Tax Rate, Effective July 1, 2025, through June 30, 2026 Diesel carries a 7.5-cent-per-gallon surcharge for diesel-powered vehicles, bringing that rate to $0.558 per gallon.8Illinois General Assembly. Illinois Code 35 ILCS 505/2 Expect another adjustment on July 1, 2026 unless inflation flatlines.
Grocery Tax Repealed, But Your City Can Bring It Back
Effective January 1, 2026, Illinois eliminated its statewide 1% sales tax on groceries.10Illinois Department of Revenue. Illinois Grocery Tax Changes Effective January 1, 2026 Groceries here means food and beverages intended for home consumption, not restaurant meals or prepared food. The repeal came through Public Act 103-0781 as part of the fiscal year 2025 budget.
The same legislation authorized municipalities and counties to impose their own 1% grocery tax by ordinance, at that exact rate, without a public referendum.10Illinois Department of Revenue. Illinois Grocery Tax Changes Effective January 1, 2026 Both home-rule and non-home-rule units have that authority. To take effect January 1, 2026, the ordinance had to be filed with the Illinois Department of Revenue by October 1, 2025 and receive IDOR approval.
Result: your grocery tax now depends on your zip code. Some towns adopted the local 1% to replace lost revenue; others didn’t. Check your receipt or your municipality’s website to see where yours lands.
Check Your Estimated Payments
After any change to exemptions or rates, it’s worth confirming your withholding still covers your Illinois liability. If you’ll owe more than $1,000 after subtracting withholding and credits, you’re generally required to make quarterly estimated payments, and shortfalls trigger an underpayment penalty that IDOR bills separately.11Illinois Department of Revenue. Step 10 Underpayment of Estimated Tax Penalty and Donations
Two groups are exempt from the estimated payment requirement: taxpayers age 65 or older who permanently live in a nursing home, and those whose federal gross income is at least two-thirds from farming.11Illinois Department of Revenue. Step 10 Underpayment of Estimated Tax Penalty and Donations The penalty also doesn’t apply if you weren’t required to file an IL-1040 for the prior year.