Illinois Corporate Tax: What It Is and How It Works

The Illinois corporate tax rate applies to certain businesses operating in the state and consists of a flat income tax rate and a separate personal property replacement tax. As of 2025, the corporate income tax rate in Illinois stands at a total of 9.5% and applies to C corporations.

While Illinois has one of the highest corporate tax rates in the nation, pass-through entities such as S corporations and partnerships typically face different tax obligations.

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What Is the Illinois Corporate Tax Rate?

The Illinois corporate tax rate applies specifically to businesses classified as C corporations, which are taxed separately from their owners. Unlike individual income tax, which applies to personal earnings, the corporate tax is based on a company’s net income derived from operations within the state.

Technically, the corporate tax rate in Illinois is 7%, but businesses also pay a personal property replacement tax of 2.5%, effectively bringing the total to 9.5% for most corporations. The replacement tax was introduced to offset the elimination of local property taxes on business-owned personal property, and it applies to corporations, partnerships and certain trusts.

Illinois determines corporate tax liability based on apportionment rules, which allocate taxable income based on the percentage of business activity conducted within the state. Businesses must calculate their tax liability using a single-sales factor formula, meaning only revenue sourced from Illinois is considered for taxation.

While C corporations pay the full corporate tax rate, S corporations, partnerships and LLCs generally pass income through to their owners, who report it on their individual tax returns. However, these entities may still be responsible for replacement taxes or other state-imposed fees depending on their structure and income sources.

How the Illinois Corporate Tax Rate Compares

A smiling Chicago businessman using his phone while walking away from an L train.

In 2025, Illinois maintains a 9.5% corporate income tax rate — third highest among states that levy a corporate tax, according to data from the Tax Foundation. Only New Jersey, which has a top rate of 11.5%, and Minnesota, with a top rate of 9.8%, have higher corporate tax rates than Illinois. North Carolina offers the lowest corporate tax rate at 2.25%.

Several states have recently adjusted their rates, including Pennsylvania, which is gradually lowering its corporate tax rate from 8.99% in 2023 to 4.99% by 2031. Meanwhile, Iowa lowered its corporate tax rate to 3.8% in 2025. These changes reflect a trend of states modifying corporate tax rates to enhance competitiveness and attract businesses.

Illinois’ rate remains relatively high, which may influence business decisions regarding operations within the state.

How Pass-Through Taxation Works in Illinois

Pass-through taxation allows certain businesses to avoid corporate income tax by shifting tax liability to individual owners. Instead of the business paying taxes on its profits, income flows directly to shareholders, partners or members, who then report it on their personal tax returns. In Illinois, this structure applies to S corporations, partnerships, LLCs and sole proprietorships operating in the state.

While these entities do not pay the 7% corporate income tax, they may still be subject to other state taxes, including the personal property replacement tax. S corporations, for instance, pay a 1.5% replacement tax, while partnerships and LLCs classified as partnerships pay 1.5% on their Illinois-apportioned net income.

This tax treatment often benefits small and mid-sized businesses by simplifying tax obligations and potentially lowering overall tax burdens. However, Illinois residents receiving pass-through income must still pay individual income tax, currently set at a rate of 4.95%, on their share of business profits.

Bottom Line

Illinois’ corporate tax structure affects businesses differently based on their classification and revenue sources. While C corporations pay a flat corporate income tax alongside a replacement tax, pass-through entities shift tax obligations to their owners. Compared to other states, Illinois has a relatively high corporate tax rate – 9.5% – which may impact where businesses choose to operate. Pass-through taxation offers an alternative for smaller businesses, though these entities still face other state tax obligations.

Tax Strategy Tips

Self-employed individuals and business owners can reduce taxable income by maximizing deductions for home office expenses, retirement contributions and qualified business expenses. Structuring income to qualify for the 20% Qualified Business Income (QBI) deduction under Section 199A can also provide tax savings.
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