Paying Illinois small business taxes is an important part of keeping your business legally compliant. The types of business taxes in Illinois that you’ll owe depend on your company’s structure and its business activities. In this guide to Illinois small business taxes, we’ll cover the different kinds of business taxes your Illinois business may owe, how to file them, and how we can make the process smoother when tax season rolls around.
With our Worry-Free Compliance Service, we can help you avoid costly errors by sending you reminders of upcoming filing deadlines. When you use our service, we’ll keep your business documents stored on your personalized business dashboard and give you access to our expert support.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.
Step 1: Establish your Illinois business’s corporate income tax obligations
Corporations that earn or receive income in Illinois must pay the Illinois income tax to the Department of Revenue. As of 2021, the Illinois business tax rate is 7%.
Corporations must file a Form IL-1120 with the Illinois Department of Revenue. The due date for filing the return and making the tax payment depends on the date that the corporation’s tax year ends. So if your tax year ends on June 30, the return and payment are due on or before the 15th day of the 3rd month following the close of the tax year. In this scenario, the due date is September 15. For tax years that end on a date other than June 30, the tax return and payment are due on or before the 15th day of the 4th month following the close of the tax year.
Corporations (other than S corporations) that can reasonably expect their income tax liability to exceed $400 must make quarterly estimated payments. These are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.
Pass-through entities, like limited liability companies (LLCs) and partnerships, don’t pay Illinois income tax. Instead, the income “passes through” to the owners, who report the business income on their personal income tax returns.
Step 2: Determine your Illinois business’s employment taxes
Every employer who either has an office in Illinois or transacts business within the state must withhold tax on compensation (wages and salaries) paid to each individual. The Department of Revenue has a helpful guide on who is required to withhold Illinois income tax on its website.
Employers must register with the Illinois Department of Revenue to withhold Illinois income tax and must electronically file their Illinois withholding income tax return. As of 2021, the withholding tax rate is 4.95%. For a detailed schedule of the withholding income tax payment due dates, check the Department of Revenue’s filing schedule.
Step 3: Establish your Illinois business’s additional state tax obligations
Here are some additional tax obligations an Illinois business should pay attention to around tax time.
In Illinois, there’s no single sales tax, but rather a combination of “occupation” taxes imposed on the sale of goods for use or consumption. The Illinois sales tax rates are broken down into three categories:
- Qualifying food, drugs, and medical appliances—1%
- Items required to be titled/registered—6.25%
- General merchandise—6.25%
Not all sales are subject to sales tax, and the Illinois Administrative Code has a full list of exemptions.
Depending on where you make your sales, the tax rate may be higher because certain local jurisdictions can impose their own taxes in addition to the state sales tax. The Department of Revenue has a helpful Tax Rate Database that you can use to determine the rate that applies to your business sales.
The due date for the sales tax return and payment depend on the category of the item or product you’re selling. For qualifying food, drugs, and medical appliances and general merchandise, the seller must file their sales tax return on either a monthly, quarterly, or yearly basis. For the sale of titled or registered items, the sales tax return must be filed and the tax payments must be made within 20 days of the date of delivery. You can file your return electronically using the MyTax Illinois online filing system.
Illinois currently has a franchise tax that domestic and foreign corporations owe for the privilege of doing business in Illinois. However, this tax will phase out completely by 2024. Until then, corporations operating in Illinois must pay .1% of the corporation’s “paid-in capital” that’s allocated to Illinois. “Paid-in capital” is basically the amount of money that the corporation received from shareholders in exchange for their stock.
The franchise tax is actually broken down into three different taxes. First is the initial franchise tax, which is due when the corporation issues shares (typically at the time of incorporation with the state). The second franchise tax is the annual one, payable each year along with the annual report. Lastly, anytime you issue more shares or increase the paid-in capital amount, the business will owe an additional franchise tax.
The Illinois Secretary of State is responsible for collecting the franchise tax. Illinois’s new law exempts an amount of franchise tax each year until 2024, when it completely phases out. $1,000 in franchise tax is exempt in 2021, $10,000 in 2022, and $100,000 in 2023.
Most Illinois employers must pay unemployment taxes, which are essentially payments set aside to fund potential unemployment claims. The Illinois Department of Employment Security collects the unemployment tax.
Small employers (those whose total quarterly wages are less than $50,000) pay 5.4% in unemployment tax. Larger employers owe unemployment taxes as soon as one of the following has occurred:
- They have paid $1,500 in wages in a single calendar quarter, or employed one or more persons for 20 weeks in a given calendar year
- They have paid $1,000 in cash wages in one calendar quarter for domestic work
- They have paid $20,000 in cash wages in one calendar quarter or employed 10 or more workers for 20 weeks in a given calendar year for farm work
The rates range from 0.475% to 6.875%.
You can submit your payments either electronically using MyTax Illinois or by mail. Employers must file wage reports and pay unemployment taxes on a quarterly basis. These reports and payments are due on or before April 30, July 31, October 31, and January 31.
An excise tax is a tax on certain goods and services. For example, Illinois has an excise tax on cigarettes, cannabis, coin-operated amusement devices, and alcoholic beverages.
Step 4: Prepare to file and pay your Illinois business taxes
The Illinois Department of Revenue is responsible for collecting a majority of the Illinois small business taxes that you’ll owe. The MyTax Illinois portal is where you can submit most tax returns and payments. To register, you’ll need to gather some information about your business, such as your Employment Identification Number (EIN) and any documentation related to your business’s income and expenses.
Having your business documents in order is essential to preparing and filing your business taxes in Illinois. You may need anything from receipts to previous tax returns. We have some useful tools to keep you organized. With our ZenBusiness Money App, we can help you track your invoices and manage your business finances.
Do I need an accountant?
Most small businesses do need professional accounting help to make sure their taxes are done correctly. You can potentially face serious consequences if you don’t file your taxes or make erroneous calculations on your return. To avoid this, it’s a good idea to consider bringing in an accountant or other tax professional.
Before choosing someone to help with your taxes, check out the IRS’s guide to tax return preparer credentials and qualifications.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
How We Can Help
Paying the right taxes and correct amounts is necessary to keep your business compliant. As long as you have your essential business documents and information in order, filing your small business taxes in Illinois should be a smooth process. We have the tools and resources to help you prepare to file.
We also offer the ZenBusiness Money App, a tool built specifically for small businesses. With the app, you can send custom invoices that include line items for taxes and manage your invoices. Having your payment history stored in one app is incredibly helpful when it comes time to prepare your taxes for the year.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can an Illinois small business make before paying taxes?
Because there are so many factors that go into calculating a business’s income taxes, it’s difficult to assess what a small business can make before paying taxes. Remember, not all income is taxable, and each entity type is taxed differently when it comes to income.
- What percentage does an Illinois small business pay in taxes?
This all depends on the structure of the business (e.g. corporation versus partnership) and its business activities.
- How does an Illinois small business pay taxes?
The Illinois Department of Revenue allows for electronic filing of most small business taxes in Illinois. Other government agencies that impose their own taxes, such as the Department Employment Security and the Secretary of State, also have online filing systems for business taxpayers.
- Do I have to file taxes for my small business in Illinois?
Most small businesses must file taxes in Illinois, even if the business “breaks even” or has a net revenue of zero. Check the DOR’s website for instructions on filing taxes in such situations.