Yes, Illinois has high taxes. By most measures of combined state and local taxation, it sits in the top ten nationally, with the country’s highest average effective property tax rate, stacked local sales taxes that push combined rates above 10% in parts of metro Chicago, a separate state estate tax that starts at $4 million, and the highest wireless phone taxes in the United States. The one large exception runs the other way: Illinois does not tax Social Security, pensions, 401(k) withdrawals, or IRA distributions.
Where Illinois Ranks Against Other States
The Tax Foundation’s 2026 State Tax Competitiveness Index places Illinois 38th out of 50, putting it in the bottom quarter alongside Ohio, Rhode Island, and Hawaii.1Tax Foundation. 2026 State Tax Competitiveness Index Neighboring Indiana lands at 10th. Measured by actual dollars paid rather than structural competitiveness, Illinois’s total state and local tax burden runs roughly 10% of resident income, again inside the top ten.
Property taxes carry the largest share of that burden. Sales and excise taxes come next. Individual income tax is the smallest of the three, which surprises people who assume the pain must be on the income tax line. It is not.
Property Taxes: The Biggest Line on the Bill
Illinois has posted the highest average effective property tax rate in the country in recent years, with homeowners paying roughly 1.83% of their home’s market value each year. That is nearly double what homeowners pay in many Sun Belt states.
These taxes do not go to the state’s general fund. They fund local governments: school districts, municipalities, townships, park districts, fire protection districts, and others. Illinois has roughly 7,000 local taxing districts, more than any other state, and each sets its own levy. Your bill is the sum of every overlapping district’s rate applied to your assessed value, which is why two homes a few miles apart can have very different bills.
Exemptions That Reduce What You Owe
The general homestead exemption is available to anyone who owns and occupies a primary residence. Seniors aged 65 and older can qualify for an additional senior homestead exemption, and a senior freeze exemption locks the assessed value for qualifying low-income seniors so rising home prices don’t drive the tax base up.
Disabled veterans get tiered relief based on VA disability rating. A rating of 30% to 49% reduces assessed value by $2,500; 50% to 69% reduces it by $5,000; and 70% or higher can eliminate property taxes entirely.2VA News. Unlocking Veteran Tax Exemptions Across States and U.S. Territories Veterans who bought or modified a home using a VA Specially Adapted Housing grant can also reduce assessed value by up to $100,000. These have to be filed annually with the county assessor.
Appealing Your Assessment
If you think your assessed value is too high, file a complaint with your county board of review, typically within 30 days of receiving the assessment notice. If the board’s decision isn’t what you wanted, you have 30 days to appeal to the state Property Tax Appeal Board.3Property Tax Appeal Board. Filing Your Appeal Residential appeals asking for less than a $100,000 change in assessed value can rely on comparable sales; larger or commercial appeals usually need a formal appraisal. The process itself costs nothing beyond your time.
The State Income Tax Credit for Property Taxes Paid
Illinois offers a credit on your state income tax equal to 5% of the real estate taxes paid on your principal residence during the year. It phases out at $250,000 of adjusted gross income for most filers, or $500,000 for joint filers.4Illinois Department of Revenue. Pub-108, Illinois Property Tax Credit On a $10,000 property tax bill, that’s a $500 reduction. Many homeowners miss it.
Sales Tax and Local Stacking
The base state sales tax is 6.25% on general merchandise.5Illinois Department of Revenue. Use Tax Rates On its own, that’s unremarkable. The problem is layering: home rule municipalities, counties, and transit authorities all add their own surcharges on top. In Chicago and parts of Cook County, combined rates exceed 10%. Downstate combined rates commonly land between 7% and 9%.
Indiana caps its combined sales tax at 7%. That gap is real money on furniture, appliances, and any large purchase people can drive across the border for.
Titled property like cars and motorcycles is generally taxed at the 6.25% state rate and does not always pick up every local surcharge that applies to other retail goods, which softens the hit on big-ticket items.
Two categories get lighter treatment. Starting January 1, 2026, Illinois eliminated the 1% state sales tax on groceries. Local governments may still impose their own grocery tax of up to 1% by ordinance, so a small tax on food will continue in some places.6Illinois Department of Revenue. Tax Rate Information for Retail Sales of Food and Medicine (PIO-115) Prescription and non-prescription medicines stay at a reduced 1% state rate.
Income Tax and the Retirement Exception
The Illinois Constitution requires a single flat income tax rate rather than graduated brackets.7FindLaw. Constitution of the State of Illinois Art. IX, 3 – Limitations on Income Taxation Since July 2017, that rate has been 4.95% for individuals, trusts, and estates.8Illinois Department of Revenue. Income Tax Rates A teacher earning $55,000 and a surgeon earning $550,000 both pay the same percentage. Changing the flat structure would require a constitutional amendment.
At 4.95%, the rate is middle of the pack: lower than California’s top marginal rate above 13%, higher than most neighboring states. The bigger story is what Illinois exempts. Social Security benefits, pension distributions, 401(k) withdrawals, and IRA payouts can all be subtracted from adjusted gross income on the state return.9Illinois Department of Revenue. Social Security Benefits and Certain Retirement Plans For retirees, that changes the calculus considerably. Only a handful of states protect retirement income this fully.
Estate Tax
Illinois is one of about a dozen states with its own estate tax. The threshold is $4 million. Estates worth less owe nothing, and once the threshold is crossed, tax applies to the full value, not just the amount above $4 million.10Illinois Attorney General. Estate Tax Instruction Fact Sheet An estate at $3.9 million owes zero; one at $4.1 million owes tax on the entire amount.
The federal estate tax exemption for 2026 is $15 million, raised by legislation signed in July 2025.11Internal Revenue Service. Whats New – Estate and Gift Tax That leaves a wide band, roughly $4 million to $15 million, where estates owe nothing federally but face a real Illinois bill. Rates are graduated and top out at 16% on estates above roughly $10 million. Even a $5 million estate owes close to $286,000 in Illinois estate tax.10Illinois Attorney General. Estate Tax Instruction Fact Sheet
Executors file an Illinois Estate and Generation-Skipping Transfer Tax Return (Form 700) within nine months of the date of death when gross value plus adjusted taxable gifts exceeds $4 million. Extensions exist but must be requested from the Attorney General within that nine-month window.10Illinois Attorney General. Estate Tax Instruction Fact Sheet
Fuel, Cannabis, Tobacco, and Wireless Taxes
Illinois indexes its motor fuel tax to the consumer price index, so the per-gallon rate climbs automatically. From July 2025 through June 2026, gasoline is taxed at $0.483 per gallon and diesel at $0.558 per gallon.12Illinois Department of Revenue. Motor Fuel Tax Rates and Fees Add federal excise taxes (18.4 cents on gasoline, 24.4 cents on diesel), and total government take at the pump clears 60 cents per gallon before any local fuel taxes.
Recreational cannabis is taxed by potency. Products at 35% THC or less pay 10% of the purchase price; cannabis-infused products like edibles pay 20%; anything above 35% THC pays 25%.13Illinois Department of Revenue. Cannabis Tax Frequently Asked Questions Regular state and local sales taxes apply on top. In Chicago, buying a high-potency concentrate can push the combined rate near 40%.
Tobacco products are taxed at 45% of the wholesale price as of July 2025, covering cigarettes, moist snuff, and electronic cigarettes.14Illinois Department of Revenue. FY 2025-31 – Changes to the Tobacco Products Tax Chicago and Cook County add per-pack taxes on top, making cigarettes in Chicago among the most expensive in the country.
Wireless bills are the outlier. Combined state and local wireless taxes in Illinois run about 25% of a typical bill, the highest of any state.15Tax Foundation. Taxes, Fees, and Government Charges on Wireless Services Chicago residents face per-line surcharges of up to $5 per month on top of the percentage-based taxes, and a family of four’s monthly wireless tax can top $35.
Corporate Income Tax
Corporations pay 7% on Illinois net income. A 2.5% Personal Property Replacement Tax applies to C corporations on top of that, bringing the combined rate to 9.5%.8Illinois Department of Revenue. Income Tax Rates S corporations, partnerships, and trusts pay a lower replacement tax of 1.5%. The Illinois Constitution caps the corporate rate at no more than 1.6 times the individual rate, allowing a maximum corporate rate of 7.92% before the replacement tax.7FindLaw. Constitution of the State of Illinois Art. IX, 3 – Limitations on Income Taxation
The 9.5% combined rate is among the highest flat corporate rates in the country. Indiana runs 4.9% flat; Missouri runs 4% flat. Small businesses structured as pass-throughs avoid the corporate rate entirely: income flows to owners’ individual returns and is taxed at 4.95% plus the applicable replacement tax.