Illinois Keeps 4.95% Flat Tax in 2025; Retirement Income Exempt

(ILLINOIS) Illinois is keeping its 4.95% flat income tax rate for the 2025 tax year, and that steady rule matters if you’re new to the United States 🇺🇸, changing visa status, or planning a move into the state. With no tax brackets, Illinois taxes taxable income at one rate, whether you earn $30,000 or $300,000. Just as important for many immigrant families planning long-term: retirement income (including Social Security, pensions, IRAs, and 401(k) distributions) stays fully exempt under Illinois law — a policy lawmakers publicly reaffirmed in February 2025 through House Resolution HR112.

This guide walks through the full “arrival-to-filing” path for newcomers and international workers, including what to do month by month, what Illinois tax offices will expect, and how to avoid penalties when the main deadline hits April 15, 2026. According to analysis by VisaVerge.com, the flat structure can make budgeting easier during expensive immigration periods like adjustment of status, H-1B extensions, or family reunification.

First week in Illinois: set up your paperwork before the first paycheck

Most tax issues for new arrivals start with missing basics. In your first week (or before you start work), focus on three items that later connect your pay records to your tax return:

• Social Security number (SSN) or ITIN — many workers will use an SSN; some spouses or investors may need an ITIN for filing.
• Correct name and address on employer records — small spelling differences can delay matching of W-2 wage reports.
• Keep every paystub until you receive your W-2 in early 2026.

If you’re being sponsored for permanent residence and your household will file a financial sponsorship form, clean income records also help. For family-based cases, the federal sponsorship form is Form I-864, Affidavit of Support, and consistent tax filings often matter when sponsors later submit updates or answer government questions.

Month 1 to Month 3: learn what Illinois will tax (and what it won’t)

Illinois taxes taxable income at the 4.95% flat income tax rate, but not every dollar you receive counts as taxable for Illinois purposes.

What commonly counts as taxable for many immigrants and visa holders:

• Wages from an Illinois job (W-2 income)
• Independent contractor earnings (often shown on a 1099)
• Investment income you must report as taxable income
• Business income for self-employed workers

What Illinois does not tax, based on the provided rules:

• Retirement income, including Social Security, pensions, IRAs, and 401(k) distributions

That retirement rule can shape big life choices. A long-time H-1B worker who later gets a green card and retires in Illinois may owe $0 in Illinois tax on a pension that would be taxed in many other states.

During the year: withholding and estimated payments

Most employees will see Illinois tax withheld automatically. Employers generally withhold at the 4.95% flat rate, so many workers won’t need to set money aside beyond what comes out of each paycheck.

If you are self-employed, have large investment income, or do gig work, you may need estimated tax payments. Illinois estimated payments apply if your liability reaches $400+. The schedule is:

Payment calculation guidance:

• Base payments on 90% of 2025 tax or 100% of 2024 tax.
• New arrivals often lack an Illinois tax history — keep written notes (even a simple spreadsheet) showing how you estimated, in case you need to explain it later.

Mid-year moves and cross-border commutes: residency rules

Many immigrants don’t spend a full calendar year in one place. Illinois handles this through part-year filing. Common cases:

• Full-year Illinois residents — taxed on all taxable income if you live in Illinois more than half the year.
• Part-year residents — prorate and report the Illinois period using Schedule NR.
• Nonresidents — owe Illinois tax on Illinois-sourced income.

Important carve-out: residents of reciprocal states — Iowa, Kentucky, Michigan, Wisconsin — do not pay Illinois tax on wages. If you live in one of those states and commute to an Illinois employer, confirm your HR and payroll settings early. Fixing it only at filing time can mean a long wait for refunds.

January to early April 2026: build your return package like an immigration file

Think of tax season as paperwork season—much like immigration. Start gathering documents in January 2026 so you are not rushing near April 15, 2026.

Your “Illinois return package” usually includes:

• W-2s from every employer
• 1099s for contract work, dividends, or other income
• Proof of any Illinois withholding
• A clear list of any retirement income amounts, even if exempt, so you don’t accidentally include it in taxable income

Keep copies of everything. Immigrants often need tax returns later for housing, school financial aid, or immigration evidence. Clean records reduce stress when a lender or lawyer asks for “the last two years of returns.”

Filing week: the IL-1040 step-by-step

Illinois uses Form IL-1040 for individual income tax returns. The filing journey is simple in concept, but details matter.

1. Confirm your residency type (full-year, part-year, nonresident).
   • Time: 15–30 minutes if you track move dates.
2. Calculate Illinois taxable income by excluding exempt items like retirement income.
   • Time: 30–90 minutes depending on how many forms you have.
3. Apply the 4.95% flat income tax rate to the taxable amount.
   • Time: 5 minutes, but double-check your numbers.
4. File electronically if possible. Illinois points filers to online options through the Department of Revenue’s official portal, including MyTax Illinois account and filing services.
   • Time: 30–120 minutes.
5. Pay any balance due by April 15, 2026, even if you will file later under an extension.
   • Time: 5–15 minutes.

Key filing tip: Keep screenshots or PDFs of electronic submissions and payment confirmations. These can be vital when immigration or financial institutions request evidence.

If you can’t finish by April 15, 2026: extensions and payment traps

Individuals get an automatic six-month extension to October 15, 2026 for filing. That extra time can help if you’re waiting for corrected documents or were abroad part of the year.

But: the extension is for filing only — not for paying tax. If you owe money, you must still pay by April 15, 2026 to avoid penalties and interest.

Practical approach many newcomers use:

• File as early as you can, even if you’re nervous.
• If you must extend, estimate and pay what you likely owe by April 15, 2026.
• Keep proof of payment with your records.

How Illinois taxes can affect immigration life plans

Taxes don’t change your visa status, but they can influence financial choices and planning. Stable state rules help families plan, especially when federal immigration steps already feel uncertain.

Common real-life connections:

• Job changes after status upgrades — with a 4.95% flat income tax rate, higher pay does not move you into a higher Illinois rate. That can make it easier to accept promotions or relocate within the state.
• Affidavit of Support budgeting — sponsors often want predictable after-tax income when they agree to support a relative.
• Retirement planning for long-term residents — the exemption for retirement income can make Illinois attractive for people who expect to retire after obtaining a green card or through an EB-5 investment path.

Business and employer context newcomers should watch

Even though your personal tax rate is unchanged, recent FY2026 budget and revenue omnibus bill HB2755 includes business-focused shifts that may affect founders, entrepreneurs, and self-employed professionals:

• 50% of GILTI becoming taxable for years ending after December 31, 2025.
• Changes in how some pass-through entity gains are apportioned.
• Remote retailer sales tax nexus dropping to a $100,000 threshold in 2026.
• A telecommunications excise tax rise of 1.65% to fund the 9-8-8 crisis lifeline.

Many workers won’t feel these changes directly, but immigrants who are founders, E-2 style entrepreneurs, or self-employed consultants should ask a qualified tax professional how employer costs or business tax rules might affect pay, pricing, or hiring.

Final takeaway: Illinois’s 4.95% flat rate and the retirement income exemption create predictable state-level tax outcomes. Combine careful recordkeeping, timely estimated payments if required, and early payroll checks to avoid surprises by April 15, 2026.