Illinois Tax: Guide to Income, Sales, Property, and Retirement Taxes

Illinois flag flying in the sky for Illinois state tax story

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Navigating the complexities of state taxes can be daunting, but understanding the Illinois tax landscape is essential for residents and newcomers alike.

In this guide, we'll explore key components of The Land of Lincoln's tax system, from income and sales taxes to property taxes and retirement benefits.

Illinois state tax: Overview

Illinois might not be the first state that comes to mind when you think of high taxes, but it ranks near the top in several areas. The state has one of the highest sales tax rates in the country, some of the steepest property taxes, and it taxes essentials like groceries, diapers, and prescription medications, which are often tax-free in other states.

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Still, there is some good news. Illinois does not tax retirement income, which is a big plus for retirees. There is also no state personal property tax, so you will not be paying annual taxes on things like your car.

Read on to learn more about what to expect as a current or future Illinois taxpayer.

[Data for this state tax guide was gathered from a number of sources including the Census Bureau, the state’s government website, and the Sales Tax Handbook. Property taxes are cited as a rate percentage rather than the assessed value.]

Illinois income taxes

Illinois imposes a flat individual income tax rate of 4.95%.

Illinois income taxes in retirement: Income from most retirement plans is exempt.

That includes payments from qualified employee benefit plans (401(k) plans and traditional pensions), government retirement plans, military pensions, and IRAs.

Social Security benefits and Railroad Retirement benefits are also exempt from Illinois state income tax.

Illinois retirement taxes

Illinois is a state that exempts all retirement income. But there is an estate tax in Illinois, which has a $4 million exemption. Estates exceeding that value are taxed between 0.8% and 16%.

Social Security: Not taxable
Pensions: Not taxable
401k and IRA Distributions: Not taxable

Illinois sales tax

Still life of a small shopping cart with $1 USD bills

Illinois has a 6.25% state sales tax. Localities can add as much as 5.25%, and the average combined rate is 8.89%, according to the Tax Foundation.

Residents of Illinois must pay sales tax on items that are tax-exempt in some other states.

Groceries: Not Taxable at the State Level
- Note: As of January 1, 2026, Illinois has removed its 1% statewide sales tax on groceries, but cities and counties can add their own local grocery tax.
Diapers: Taxable
Prescription: Taxable
Clothing: Taxable

How much are property taxes in Illinois?

According to the Tax Foundation, the average effective property tax rate in Illinois is 1.83%, which is one of the highest rates in the country.

Illinois Property Tax Breaks for Retirees

Homestead Exemption: Adults 65 or older might qualify for a property tax exemption of up to $6,000 of a property's assessed value (up to $10,000 in Cook County and $8,000 in counties contiguous to Cook). Illinois offers other types of homestead exemptions to some people younger than 65, too, but exemption amounts may differ.

Assessment Freeze Homestead Exemption: Qualified adults 65 and older may have their property's assessed value frozen. To qualify for the freeze, household income must not exceed $65,000.

Real Estate Tax Deferral Program: Qualified residents age 65 or older with a household income of $65,000 or less can defer up to $7,500 in property tax payments.

Illinois gas tax

rendering of a yellow car against a yellow background

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Gasoline	$0.19 per gallon
Diesel	$0.22 per gallon

Illinois taxes on alcohol and tobacco

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Illinois tobacco taxes
Product	Tax amount
Cigarettes	$1.98 per pack
Other tobacco product taxes	36% wholesale price
Medical marijuana tax	1.00%
Recreational marijuana tax	16.25% (6.25% Illinois cannabis sales tax + 10% state excise tax)

Source: The Sales Tax Handbook

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Illinois alcohol taxes
Product	Tax amount
Beer	$0.23 per gallon
Wine	$1.39 per gallon
Liquor	$8.55 per gallon

Source: The Sales Tax Handbook

Illinois estate and inheritance taxes

Illinois has an estate tax with a $4 million exemption. Estate tax rates range from 0.8% to 16%. There is no inheritance tax in Illinois.

Katelyn has more than 6 years of experience working in tax and finance. While she specialized in tax content while working at Kiplinger from 2023 to 2024, Katelyn has also written for digital publications on topics including insurance, retirement, and financial planning and had financial advice commissioned by national print publications. She believes knowledge is the key to success and enjoys providing content that educates and informs.