Illinois's Tax Overhaul Never Touched the Flat 4.95%

A single filer with $65,000 of wages owes Illinois $3,072.71 for tax year 2026 (the return due in spring 2027): $65,000 minus the $2,925 exemption allowance, times the flat 4.95% in force since July 1, 2017. The tax overhaul Illinois enacted for tax years ending on or after December 31, 2025 changed neither number.

The overhaul was real; it was aimed at a different taxpayer. The Department of Revenue's December 2025 roundup, Informational Bulletin FY 2026-15, carries its two headline changes: unitary business groups now apportion their Illinois income under the Finnigan method on Schedule UB, and the deduction for Net CFC Tested Income (the category federal law used to call GILTI) is limited to 50% on Schedule J. Schedule UB is a combined corporate return. Schedule J is a foreign-dividends schedule. An IL-1040 contains no line that either change can reach.

What an individual return turns on is older machinery: an exemption allowance that inflation-adjusts in $25 steps and vanishes above $250,000, a retirement subtraction, and a 5% property tax credit. Each has a current number, and each number has a mechanism.

Flat is constitutional; 4.95% is ordinary law

Article IX, §3(a) of the Illinois Constitution reads: "A tax on or measured by income shall be at a non-graduated rate." It does not name the rate. The number sits in 35 ILCS 5/201(b), where the General Assembly can move it by ordinary statute, and has: IDOR's own rate history shows 2.5% at the tax's 1969 creation, wiggles between 2.5% and 3% through the 1980s, 3% from 1990 through 2010, 5% from 2011 through 2014, 3.75% from 2015, and 4.95% from July 1, 2017. Eight rate changes since 1969, every one a statute, none an amendment.

Making the rate graduated is a different act. That takes a constitutional amendment ratified under Article XIV, §2: three-fifths of those voting on the question, or a majority of all ballots cast in the election. The graduated-rate amendment on the November 2020 ballot drew 46% support, short of both thresholds. A November 2024 advisory question on a millionaire surtax drew 61%; advisory questions bind nobody, and the rate did not move. Graduated-rate and surtax proposals were filed again for the 2026 session, and each needs a three-fifths vote in the legislature before voters ever see a ballot question.

Between tax year 2022 and tax year 2026 the Illinois rate moved 0.00 percentage points. Over the same five years, 20 states cut their top rate.

The exemption allowance is where the bill moves

Illinois has no standard deduction. It has an exemption allowance, and 35 ILCS 5/204 builds it as $2,050 plus a cost-of-living adjustment measured against the 2011 Consumer Price Index, rounded down to the nearest $25. The recent run: $2,425 for tax year 2022, then a freeze. Public Act 103-9, the June 2023 budget act, suspended the adjustment and wrote $2,425 into the statute for 2023, so the allowance sat still while prices did not. Indexing resumed at $2,775 for 2024, then $2,850 for the 2025 tax year (the return filed in 2026). For tax year 2026 the allowance is $2,925, a figure employers have carried in the IL-700-T withholding tables since January.

At a flat 4.95%, each exemption is worth $2,925 × 4.95% = $144.79 of 2026 tax.

Cross $250,000 and the exemption vanishes in one step

Subsection (g) of 35 ILCS 5/204 allows no exemption once adjusted gross income exceeds $250,000 for a single filer, or $500,000 on a joint return. There is no phase-out band; the statute's words are "no taxpayer may claim an exemption." A single filer at $250,000 of 2026 income owes $12,230.21. At $250,001, $12,375.05. The one extra dollar carries $144.84 of tax: a nickel on the dollar itself, plus the $144.79 exemption that just disappeared.

The same line cuts twice more. IDOR's bulletin lists the exemption allowance, the property tax credit, and the K-12 education expense credit as all unavailable above the $250,000/$500,000 thresholds.

Retirement income comes off the return, all of it

Illinois taxes none of the retirement income the federal return taxes. Publication 120 lists what subtracts on IL-1040 Line 5: Social Security benefits, distributions from qualified employee plans (401(k) plans included), IRA distributions, government and military retirement, railroad retirement. The $65,000 that costs a wage earner $3,072.71 costs a retiree drawing the same amount as Social Security and IRA withdrawals $0 of 2026 Illinois tax.

No city can fill that gap. Under Article VII, §6(e) of the constitution, a home-rule unit may tax income only if the General Assembly grants that power by law, and no such grant exists; Chicago cannot add a city income tax to a return the way New York City does.

The property tax credit hands back 5%

The credit equals 5% of the Illinois property tax paid on a principal residence during the tax year, claimed on Schedule ICR. A $6,000 property tax bill returns $300 against the income tax. The credit follows the same income cutoff as the exemption: none above $250,000 of AGI, $500,000 joint.

What $65,000 pays here and in every border state

All five states Illinois borders charge this filer less for 2026, by margins running from $685.69 (Wisconsin) to $1,214.51 (Iowa).

Wisconsin is the instructive row. Its top rate is 7.65%, 2.7 points above Illinois, and its $65,000 single filer pays $685.69 less, because a $13,960 sliding standard deduction and two lower brackets shield most of the income before that top rate is reached. Illinois runs the opposite design: a $2,925 exemption, then one rate on every remaining dollar. The 2026 ranking across all 51 jurisdictions applies the same computation everywhere, and the calculator will run your own number.

Data note

Rates, exemption and deduction amounts, and data-status labels above resolve from the TaxMath rate tables at build time; the dollar results apply the calculator's arithmetic to those same tables for a single filer with wage income only. The calculator models wage and investment income, not the Line 5 retirement subtraction, so the retiree's $0 above comes from Publication 120's list rather than from the calculator. Wisconsin's and Missouri's graduated schedules are on their table pages, Wisconsin 2026 (the deduction slides down 12 cents per dollar of income above $20,119) and Missouri 2026. Property, sales, and payroll taxes sit outside this comparison. Five of the six rows carry final 2026 figures; Iowa's rate is a 2025 carry-forward pending its department's 2026 publications, which TaxMath labels provisional. The live board is at 2026 data status.

One date is worth watching. The exemption schedule in 35 ILCS 5/204(b) sets amounts only through taxable years ending on or before December 31, 2028, and no clause yet covers the year after. The General Assembly has added three clauses to that list since 2012; whether it writes a fourth decides what the exemption line of the IL-1040 is worth in 2029.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.