How to File LLC Taxes in Illinois? (A Complete Guide)

The timely and accurate filing of your LLC taxes is one of the key criteria for maintaining compliance with the Illinois Department of Revenue.

To help you navigate the intricate tax filing procedure, we enlisted expert help from our trained team of business consultants with more than seventeen years of expertise in the LLC industry.

We spent five weeks looking through the Illinois official tax websites for the right LLC tax requirements.

Here is an overview of all the Illinois LLC taxes that you need to be aware of.

Quick Summary

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How Are LLCs Taxed in Illinois?

LLCs are taxed in Illinois based on the number of members. An LLC with one member is taxed like a sole proprietorship, and an entity with more than one member is treated like a partnership.

Illinois LLCs can also be taxed as C or S corporations and file different forms when they want to pay taxes.

State Taxes for Illinois LLCs

The state of Illinois taxes different LLC structures based on the following:

1. Single-Member LLCs

An Illinois LLC with one owner or member is a disregarded entity for taxation and is handled like a sole proprietorship.

Since no Illinois state income tax filing obligations exist for a single-member LLC, the entity's income, deductions, and other items will be recorded on its owner's Illinois return Form IL-1040.

The LLC owner will pay income taxes on his net income as well as self-employment taxes.

2. Multi-Member LLCs

The Illinois Department of Revenue treats multi-member LLCs as partnerships for federal income tax purposes.

As such, the LLC will file federal Form 1065, U.S. Return of Partnership Income, and submit Form IL-1065, Illinois Partnership Replacement Tax Return.

The amounts transferred to each partner's federal income tax return should be shown on a Schedule K-1-P, Partner's or Shareholder's Share of Income, Deductions, Credits, and Recapture [1].

3. LLCs Taxed as S-corp

Illinois LLCs can choose S-corporation taxation by submitting Form 2553 to the Internal Revenue Service (IRS). S-corps are taxed as pass-through corporations, much like conventional LLCs.

S-corps can distribute income as dividends and a fair wage, but LLCs must release profits in a single lump payment.

"Dividends from an S corporation are exempt from the 15.3% self-employment taxes."
- Pierce Murphy, Business Lawyer 

4. LLCs Taxed as C-corp

An LLC's owners elect to have their LLC regarded for tax purposes as a C corporation by submitting Form 2553 to the IRS [2].

Like practically every other state, Illinois levies corporate income taxes. Illinois's corporate income tax rate is 5.25% of the federal taxable income, subject to changes.

Illinois also levies a 2.5% of net revenue personal property replacement tax on businesses. 

Federal Taxes for Illinois LLCs

Business entities in Illinois are subject to the following federal income taxes:

1. Federal Self-Employment Tax

Any LLC managers or members who take money from the Illinois LLC are exposed to a 15.3% self-employment tax. This charge is governed by the Federal Insurance Contributions Act (FICA), which provides coverage for Social Security, Medicare, and other programs.

2. Federal Withholding Tax

All employers and business owners in Illinois must typically withhold Illinois state income tax of 4.95%.

The following incomes are subject to withholding tax:

• Illinois-based earnings and salaries paid to employees.
• Illinois-based gaming or lottery wins paid to residents.
• Illinois-based unemployment benefits provided to residents who requested that Illinois taxes be withheld.

Other Taxes

Here are other LLC business taxes that may apply to your Illinois limited liability company.

1. Local Illinois Taxes

Illinois allows local taxes to be tacked on to any purchases.

For instance, Joliet only collects an additional 2.5% sales tax, whereas Chicago charges 4% on all purchases. There is no municipal sales tax in certain counties, including Addieville.

These municipal sales taxes and the state sales tax must be collected by your LLC and sent to the relevant authorities.

2. Sales and Use Tax

Illinois sales tax includes all state, municipal, mass transit, home rule and non-home rule occupation and use, recreation district, county public safety and infrastructure, county school building, and business district taxes [3].

It is levied against a retailer's sales revenues for physical goods intended for use or consumption.

You must obtain a license before you start to pay sales tax in Illinois. The quickest and simplest way to obtain your license is to sign up online at MyTaxIllinois or mail a completed Business Registration Application (Form REG-1) to the appropriate address.

Once you have a license, there are two rate systems for the Illinois sales tax: one for qualified food, medications, and medical equipment and another for general commodities, which includes products that must be named or filed by an Illinois state government agency.

The rates of the general state sales and use taxes in Illinois are:

• 6.25% on general commerce, including those that must be named or registered by an Illinois state government agency.
• 1% on acceptable foods, medications, and medical equipment.

Note that the ability of some local governments to levy their taxes, which can be added to the state sales tax rate, results in higher sales tax rates in some towns in Illinois.

3. Unemployment Insurance Tax

You must pay Illinois Unemployment Insurance (UI) tax if your small firm employs people there. The UI tax supports programs for qualifying employees to get unemployment benefits.

Your small business must open an Unemployment Insurance tax account with the Illinois Department of Employment Security (IDES), and you have 30 days to get the account.

Most for-profit businesses must pay state unemployment taxes as soon as they employ one or more people for 20 weeks in a calendar year or pay $1,500 in salaries in a single calendar quarter.

4. Workers' Compensation

Suppose an Illinois LLC has at least one part-time or full-time employee. In that case, the Illinois Department of Revenue mandates that it maintain workers' compensation insurance that provides compensation to your employees if they become ill or injured on the job.

This coverage can restore most of your employee's lost salary and assist in covering their medical expenses.

However, Illinois workers' compensation does not offer payments for illnesses or injuries that arise directly or indirectly from unidentified causes.

Without this protection, your company may be held responsible for any damages resulting from an employee's sickness or injury on the job.

You may also be subject to steep fines if you don't have this insurance when it's necessary.

Some employees are exempt from state requirements and do not require insurance, including:

• Sole proprietors.
• Corporate directors or officers.
• Partners in a business.
• Members in a limited liability corporation.

What Is Tax-Deductible for an LLC in Illinois?

Tax-deductible for an LLC in Illinois include earned income tax credit, exemption allowance, Illinois K-12 education expense credit, and contributions made to ABLE accounts.

1. Illinois Earned Income Tax Credit (EITC)

For taxpayers with low and moderate incomes, Illinois's earned income tax credit is equivalent to the federal earned income tax credit.

The Illinois EITC can lower your tax obligations dollar for dollar and potentially result in reimbursement because it is a refundable tax credit.

The EITC in Illinois is closely related to the corresponding federal scheme. In general, if you are eligible for the federal program, you are also eligible for the state credit.

Your federal eligibility also determines the credit's value; the EITC increases to 20% of the federal benefit for tax years 2023 and after that.

2. Exemption Allowance

Nearly everyone who receives a paycheck in Illinois can subtract a certain amount from their taxable income, known as an exemption allowance.

For married individuals filing jointly in 2024, the exemption can reach $4,850 ($2,425 for single taxpayers).

The exemption allowance differs from the standard deduction in that you can still claim it even if you have other additional income deductions.

3. Illinois K-12 Education Expense Credit

If you spend more than $250 on eligible school costs, the Illinois K-12 education expense credit might reduce your tax payment by up to $750.

These costs consist of tuition, book rental fees, and lab costs.

But there are certain exceptions. For example, you cannot deduct childcare, preschool, or college expenses.

If some materials or items are utilized for approved activities but are slightly used up during the school year, they might not be allowed.

Also, this tax advantage is not available to taxpayers with federal-adjusted gross incomes of more than $250,000 ($500,000 for married couples filing jointly).

Related Articles:

• How to Form an LLC in Illinois
• Professional Registered Agent Services in Illinois
• Top LLC Formation Services in Illinois

Other Tax Deductions

The state does not have a standard deduction in the conventional sense or itemized deductions. Illinois instead provides a list of certain costs that can be subtracted from your LLC income.

These consist of:

• Pledges to education savings accounts.
• Income from bonds issued by the state or municipal governments of Illinois that are free from taxes.
• Contributions made to ABLE accounts, a type of savings program for persons with disabilities.

FAQs

Do You Need Help Filing Your Illinois LLC Taxes?

As an Illinois-based entrepreneur, you must be meticulous when processing your LLC taxes with the state to avoid errors that could cause your company to fall out of good standing.

For this reason, we advise using QuickBooks to organize various state and federal income taxes.

The QuickBooks integrated platform is digitized and automates all the procedures, making it simple to generate company tax information and forms for you and your employees.