Registration Requirements in Illinois
Businesses may be required to register with the Illinois Office of The Secretary of State. More information can be found at their website here:
Businesses that operate in the state of Illinois will also need to register with the Illinois Department of Revenue. Form REG-1 - Illinois Business Registration application must be filed to obtain an Illinois Tax ID number. Form is at the following link:
S Corporation Tax
While Illinois does recognize the federal S election, it nevertheless requires Illinois S corporations to pay the net replacement tax at a rate of 1.5% of net income, and, as Illinois corporations, the annual corporation franchise tax. In addition, an individual S corporation shareholder will owe tax to the state on his or her share of the company’s income. The replacement tax is computed in the same form as the S corporate annual return.
S corporations file their annual return on Form IL-1120-ST.
Not required to pay income tax to Illinois. Business income is passed to partners who pay Illinois tax on their personal return. Illinois LLCs and partnerships are however required to pay the net replacement tax, outlined below. The replacement tax is computed in the same form as the partnership return.
Partnerships and LLC’s file their annual return on Form IL-1065.
Annual Franchise Tax
Illinois businesses are required to pay an annual franchise tax. The tax is based on company’s net worth. The annual franchise tax is administered by the Illinois Secretary of State. The annual forms can be found at the following link.
As of 12/31/14, composite returns in Illinois will no longer be permitted.
Individual Income Tax
Illinois generally conforms to the Internal Revenue Code on a rolling basis, and therefore it adopts most federal provisions, unless otherwise modified.
The starting point for computing Illinois personal income tax liability is the federal adjusted gross income and allows their own state defined additions and subtractions to arrive at Illinois adjusted gross income.
Illinois does not have a standard or itemized deduction but they do allow for personal exemptions if you qualify. The personal exemption amount for 2020 is $2,325.
Illinois does not conform to the IRC section 199A, also known as the QBI deduction.
Shareholders and partners with income assignable to Illinois may be required to file an individual income tax return that reflects their portion of Illinois income.
Individual income tax is taxed at a flat rate of 4.95%.
CARES Act Guidance
Rolling conformity states generally adopt changes to the IRC as they are enacted at the federal level, unless otherwise modified. Illinois specifically does not conform to the IRC Section 172 of the CARES Act regarding business net operating loss (NOL) provisions. Instead, Illinois will retain its treatment of business NOLs, not allowing any carryback and allowing only a 12-year carryforward.
S corporation returns are generally due when the federal tax return is due. Usually on the 15th day of the 3rd month following the close of the tax year.
Partnership returns are due on the 15th day of the 4th month following the close of the tax year.
Individual income tax returns are generally due on the day the which IRS individual income tax returns are due.
Pass through entities in Illinois are not required to make estimated payments. If they choose to do so, they can make estimated tax payments on Form IL-1065-V and Form IL-1120-ST-V. These forms can be found at the following links.
Individuals will use Form IL-1040-ES. If an individual believes they will owe more than $1,000 then they should file and pay estimated payments. Estimated payments are due on the 15th day of the fourth, sixth, and ninth month of the calendar year and a final payment on the 15th of the first month following the end of the tax year. This form can be found at the following link.
S corporations in Illinois are automatically granted a 7 month extension to file. Partnerships and individuals are automatically granted a 6 month extension. This extension does not apply to the payment and if a balance is expected, businesses and individuals must make timely payments using one of the following forms.
Illinois will assess a penalty of the lesser of $250 or 2% of tax due for any returns that are not filed in a timely manner. Late payments will be assessed at a rate of 2% for the first 30 days and 10% for 31+ days that the payment is delinquent.
More information can be found on Illinois publication 103 at the following link.
If your business was formed or is located in another state, but generates income in Illinois, it may be subject to Illinois taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
Illinois Department of Revenue
Illinois Secretary of State