Illinois enacted a wave of new tax laws through its fiscal year 2025 budget package, signed on June 6, 2024, with changes rolling in through 2026.1Illinois General Assembly. FY 2025 Budget Summary The headline for households is the end of the 1% state grocery tax on January 1, 2026. For businesses, Illinois began taxing most equipment leases in 2025, kept a $500,000 cap on corporate loss deductions, and overhauled how sports betting operators are taxed. The personal income tax exemption also ticks up slightly for 2026.
State Grocery Tax Ends January 1, 2026
Public Act 103-0781 eliminates the 1% state sales and use tax on groceries starting January 1, 2026.2Illinois Department of Revenue. Illinois Grocery Tax Changes Effective January 1, 2026 Before the change, most food bought for home consumption was taxed at a reduced 1% state rate rather than the 6.25% general merchandise rate. That 1% is gone at the state level, so qualifying staples carry no state sales or use tax at all.
Not every grocery item qualifies. Candy, soft drinks, alcoholic beverages, cannabis-infused food, and anything prepared for immediate consumption continue to be taxed at the general merchandise rate.2Illinois Department of Revenue. Illinois Grocery Tax Changes Effective January 1, 2026 A deli sandwich or a bag of candy rings up differently from a loaf of bread, even in the same cart.
Whether you actually see a smaller receipt depends on where you shop. The law lets cities and counties impose their own 1% local grocery tax by ordinance, without voter approval.2Illinois Department of Revenue. Illinois Grocery Tax Changes Effective January 1, 2026 Local governments that filed an ordinance with the Illinois Department of Revenue by October 1, 2025, could have their local tax take effect the same day the state tax disappeared, leaving the rate in that community unchanged.
Personal Exemption Rises for 2026
Illinois taxes individual income at a flat 4.95% and lets you subtract a personal exemption for yourself, your spouse if filing jointly, and each dependent. For 2026, that exemption is $2,925 per person, up from $2,850 in 2025.3Illinois Department of Revenue. What Is the Illinois Personal Exemption Allowance? The amount is adjusted each year for inflation.
Higher earners lose it entirely. The exemption drops to zero if federal adjusted gross income exceeds $250,000 for most filers, or $500,000 for spouses filing a joint federal return.3Illinois Department of Revenue. What Is the Illinois Personal Exemption Allowance? Federally, the personal exemption remains at $0 for 2026 after the One, Big, Beautiful Bill made the Tax Cuts and Jobs Act’s elimination permanent.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Sports Betting Taxes
Operators Now Pay Graduated Rates
Illinois replaced its flat 15% tax on sports wagering operators with a graduated structure that reaches 40% at the top. The brackets apply equally to online and in-person wagers:5Illinois General Assembly. 230 ILCS 45 – Sports Wagering Act
- Up to $30 million in adjusted gross receipts: 20%
- $30 million to $50 million: 25%
- $50 million to $100 million: 30%
- $100 million to $200 million: 35%
- Over $200 million: 40%
The brackets are marginal, so each slice of revenue is taxed at that bracket’s rate. On top of that, a per-wager fee took effect July 1, 2025: $0.25 for the first 20 million online or mobile wagers each year, and $0.50 per wager above that, win or lose.6Illinois Gaming Board. FAQs on New Statutory Sports Wager Tax
What Bettors Owe
Those operator rates don’t apply to you if you’re placing bets, but your winnings are still taxable. Illinois treats gambling winnings as ordinary income at the 4.95% flat rate, and sportsbooks must withhold Illinois tax whenever federal withholding is required.7Illinois Department of Revenue. Pub-130, Withholding Illinois Income Tax for Lottery or Gambling Winnings Federal withholding at 24% kicks in when net winnings exceed $5,000 on a wager that paid at least 300 times the amount risked. Smaller winnings are still taxable income even if nothing was withheld and no Form W-2G was issued.
A federal change hits bettors starting in the 2026 tax year. Under the One, Big, Beautiful Bill, you can deduct only 90% of your gambling losses against your winnings, instead of the full dollar-for-dollar amount available before. Break even for the year on paper and you can still owe tax on phantom income. Detailed records of each bet matter, because sportsbooks report your winnings to the IRS but not your losses.
Corporate Net Loss Deduction Capped at $500,000
Illinois extended its limit on how much accumulated loss a corporation can use in a single year. For tax years ending on or after December 31, 2024, and before December 31, 2027, corporations other than S corporations can deduct at most $500,000 in Illinois net loss deductions per year.8Illinois Department of Revenue. Schedule NLD Instructions Losses above the cap carry forward to future years rather than erasing the current year’s liability. The ceiling applies whether a corporation files alone or as part of a unitary business group; S corporations are not subject to it.9Illinois Department of Revenue. When Can an Illinois Net Loss Deduction (NLD) Be Used and What Are Its Limitations?
Sales Tax Now Applies to Most Leases
Public Act 103-0592 began treating most leases of tangible personal property as retail sales subject to Illinois sales and use tax, effective January 1, 2025.10Illinois Department of Revenue. Does Illinois Sales Tax Apply to Leases of Tangible Personal Property? Lessors must now collect and remit sales tax on lease payments and file Form ST-1.
One carve-out matters: property that has to be titled and registered with a state agency is excluded. Cars, trucks, and other titled vehicles stay under their existing tax framework and are not affected by the new lease rule.11Illinois Department of Revenue. Vehicle Tax FAQs The change mainly reaches businesses that lease equipment, machinery, and other non-titled property.