Illinois Business Taxes for LLCs
Find out what taxes Illinois LLCs need to pay — including state income tax, the Personal Property Replacement Tax, sales tax, self-employment tax, and payroll withholding requirements.
Bizee Editorial Staff
Editorial Team
Illinois tax quick facts
Filing fee: $150 (Articles of Organization)
Processing time: Typically 5–10 business days (standard); expedited options available
State agency: Illinois Secretary of State
Annual report due: Before the first day of the LLC's anniversary month each year
State tax rate: 4.95% flat individual income tax rate; 1.5% Personal Property Replacement Tax on net income for partnerships and S Corps
How Illinois LLCs are taxed
Illinois LLCs don't pay income tax at the business level the way C Corporations do. Instead, profits pass through to the members, who report them on their personal returns and pay Illinois's flat 4.95% individual income tax rate. That pass-through structure is the default — but the specific taxes you owe depend on how your LLC is classified and whether you have employees.
Most Illinois LLC owners deal with some combination of state income tax, the Personal Property Replacement Tax, sales tax (if they sell taxable goods or services), self-employment tax, and federal income tax. If you have employees, payroll withholding adds another layer. Illinois has a few requirements that catch people off guard — the Personal Property Replacement Tax in particular is one many new LLC owners don't know about until their first filing.
Illinois state taxes for LLCs
Illinois imposes 3 main state-level taxes on LLC owners: individual income tax on pass-through profits, the Personal Property Replacement Tax on the LLC itself, and sales tax if your business sells taxable goods or services.
Illinois individual income tax
Illinois taxes individual income at a flat 4.95% rate. Because LLC profits pass through to members, each member reports their share of the LLC's income on their Illinois Form IL-1040 and pays tax at that rate. Multi-member LLCs file an Illinois partnership return (Form IL-1065) to report the LLC's income, but the tax itself is paid at the member level.
Personal Property Replacement Tax (PPRT)
Illinois LLCs taxed as partnerships or S Corporations owe the Personal Property Replacement Tax at 1.5% of net income. This is a tax paid by the business entity itself — not by the individual members — and it's reported on the same return as the LLC's income. It's one of the taxes that surprises new LLC owners most, because it sits on top of the pass-through income tax members pay personally.
Illinois sales and use tax
If your LLC sells taxable goods or certain services in Illinois, you need to collect and remit sales tax. The state base rate is 6.25%, but local jurisdictions add their own rates on top — so the total rate varies by city and county. You register with the Illinois Department of Revenue to get a sales tax permit before you start collecting. Use tax applies when you buy taxable items out of state for use in Illinois without paying sales tax at the time of purchase.
Federal taxes for Illinois LLC owners
Illinois LLC owners pay federal taxes based on how the LLC is classified with the IRS. The default classification — disregarded entity for single-member LLCs, partnership for multi-member LLCs — means profits pass through to members, who pay federal income tax and self-employment tax on their share.
Self-employment tax
LLC members who are active in the business pay self-employment tax at 15.3% on net earnings — 12.4% for Social Security (up to the annual wage base) and 2.9% for Medicare. You report this on Schedule SE when you file your federal return. You can deduct half of the self-employment tax from your gross income, which reduces your federal income tax.
Federal income tax
Pass-through income from your LLC is added to your other income and taxed at your individual federal rate. Because no employer withholds tax for you, you'll likely need to make quarterly estimated tax payments to the IRS to avoid an underpayment penalty at year end.
Electing a different tax classification
Illinois LLCs aren't locked into the default pass-through classification. You can elect to be taxed as a C Corporation by filing IRS Form 8832, or as an S Corporation by filing IRS Form 2553 (if you meet the eligibility requirements). An S Corp election can reduce self-employment tax for owners who pay themselves a reasonable salary, but it adds payroll complexity. A tax professional can help you figure out whether an election makes sense for your situation.
Payroll and employer taxes
If your Illinois LLC has employees, you take on withholding and employer tax obligations on top of your own income and self-employment taxes. These apply regardless of your LLC's tax classification.
Illinois state income tax withholding
You must withhold Illinois income tax at 4.95% from every employee's wages and remit it to the Illinois Department of Revenue. Employees complete Form IL-W-4 to set their withholding. You register as an employer with the Illinois Department of Revenue before your first payroll.
Federal payroll taxes: FICA and FUTA
As an employer, you withhold Social Security tax at 6.2% and Medicare tax at 1.45% from employee wages, and match both amounts as the employer. An additional 0.9% Medicare tax applies to wages over $200,000 — you withhold that from the employee but don't match it. You also pay federal unemployment tax (FUTA) at 6.0% on the first $7,000 of each employee's wages, though a credit of up to 5.4% applies if you pay Illinois state unemployment taxes on time.
Payroll tax rules have enough moving parts that most LLC owners with employees work with a payroll provider or accountant. Getting it wrong can mean back taxes, penalties, and months of paperwork to sort out.
FAQ
It depends on how your LLC is classified and whether you have employees. By default, Illinois LLC profits pass through to members, who pay Illinois's 4.95% individual income tax and federal income tax on their share. The LLC itself owes the 1.5% Personal Property Replacement Tax on net income. If you sell taxable goods or services, you also collect and remit Illinois sales tax. Add self-employment tax at the federal level, and payroll taxes if you have employees.
Yes. Illinois has a state sales tax base rate of 6.25% on taxable goods and certain services. Local jurisdictions — cities and counties — add their own rates on top, so the total rate varies by location. If your LLC sells taxable items in Illinois, you need to register with the Illinois Department of Revenue and collect the correct combined rate for each sale.
It's a 1.5% tax on the net income of Illinois LLCs taxed as partnerships or S Corporations. Unlike the individual income tax that members pay on their share of profits, the Personal Property Replacement Tax is paid by the business entity itself. It's reported on the LLC's Illinois partnership or S Corp return. Many new LLC owners don't know about it until their first filing.
Yes, in most cases. Because no employer withholds tax from your LLC income, you're responsible for making quarterly estimated payments to both the IRS and the Illinois Department of Revenue. If you don't pay enough throughout the year, you can owe an underpayment penalty when you file. A tax professional can help you figure out the right payment amounts based on your projected income.
Illinois business tax forms are available directly from the Illinois Department of Revenue at tax.illinois.gov. Multi-member LLCs file Form IL-1065 (partnership return). LLCs taxed as S Corporations file Form IL-1120-ST. Individual members report their share of income on Form IL-1040. Federal forms — including Schedule SE, Form 1065, and Form 1120-S — are available at irs.gov.
Yes, if the LLC meets IRS eligibility requirements. You file IRS Form 2553 to make the election. An S Corp election can reduce self-employment tax because only the salary portion of owner compensation is subject to payroll taxes — distributions are not. But it adds payroll complexity and requires you to pay yourself a reasonable salary. Talk to a tax professional before making this election to make sure the savings outweigh the added requirements.
Self-employed Illinois LLC owners pay Illinois individual income tax at 4.95% on their share of LLC profits. The LLC itself also owes the 1.5% Personal Property Replacement Tax on net income. If the business sells taxable goods or services, sales tax applies too. At the federal level, self-employed owners pay self-employment tax at 15.3% on net earnings, plus federal income tax at their individual rate.
