Illinois imposes several layers of taxation on businesses operating within the state. From corporate income taxes and franchise taxes to replacement taxes on partnerships and S corporations, the system is designed to capture contributions across all types of entities. Deadlines, required forms, estimated payments, and penalties all play a key role in compliance.
This blog provides a clear breakdown of the Illinois tax system, covering C corporations, S corporations, partnerships, LLCs, and LLPs.
C – Corporation Income Tax
Illinois levies a corporate income tax on C corporations at a rate of 9.5% of net income. Alongside this, corporations are also subject to an annual franchise tax, which applies at 0.15% in the first year and 0.10% in subsequent years. The franchise tax has a minimum of USD 25 and a maximum cap of USD 2 million.
Corporations must file Form IL-1120, Corporation Income and Replacement Tax Return, by the 15th day of the fourth month following the close of their tax year. If the tax year ends on December 31, an automatic seven-month extension is granted to file the return.
These rules ensure corporations meet both income and franchise obligations while giving them additional time to prepare accurate filings when needed.
C corporations must also comply with estimated payment requirements. If a corporation’s income and replacement tax liability is expected to exceed USD 400, quarterly estimated payments must be made. Payments are due on the 15th day of the fourth, sixth, ninth, and twelfth month of the tax year, using Form IL-1120-V, Payment Voucher for Corporation Income and Replacement Tax.
Illinois imposes strict penalties and interest charges for late compliance:
- Late-filing Penalty – Tier 1: The lower of USD 250 or 2% of the tax due. If the return is timely filed but cannot be processed, the corporation has 30 days to correct the issue before penalties apply.
- Late-filing Penalty – Tier 2: If a return is not filed within 30 days after receiving a notice of non-filing, an additional penalty of 10% of the tax due is imposed.
- Late-payment Penalty: Calculated based on the number of days late.
- 1–30 days late: 2%
- Over 30 days late: 10%
- Interest Rate: Currently set at 7% on unpaid tax.
These penalties highlight Illinois’ emphasis on timely compliance.
S – Corporation Income Tax
S corporations in Illinois are not subject to state income tax at the entity level, but they are required to pay a replacement tax. Income is generally passed through to shareholders, who must report it on their personal or business tax returns. The tax rate is 4.95%, applied at the shareholder level.
S corporations must file Form IL-1120-ST, Small Business Corporation Replacement Tax Return, by the 15th day of the third month following the end of the tax year. The state provides an automatic seven-month extension to file.
If an S corporation elects to pay Pass-Through Entity (PTE) tax and expects its liability to exceed USD 500, it must make estimated payments using Form IL-1120-ST-V. These payments can be submitted electronically or by mail.
It’s important to note that interest and penalty rules for S corporations mirror those for C corporations.
Partnership LLCs & LLPs Tax
Partnerships, LLCs, and LLPs in Illinois must file Form IL-1065, Partnership Replacement Tax Return, by the 15th day of the fourth month following the close of the tax year. An automatic six-month extension is available.
Partnerships that elect to pay PTE tax and expect liabilities exceeding USD 500 are required to make estimated tax payments using Form IL-1065-V.
The interest and penalty rules for partnerships, LLCs, and LLPs are the same as those for C corporations, which means businesses must carefully manage deadlines to avoid fines and charges.
Illinois’ tax system requires careful planning from businesses of all types. Corporations face both income and franchise taxes, while S corporations and partnerships must handle replacement taxes and potential PTE obligations. Across the board, estimated payments and strict penalties reinforce the importance of compliance.
For companies operating in Illinois, staying on top of these requirements ensures smooth business operations without costly setbacks. Timely filings, accurate reporting, and proactive payment of obligations are key to avoiding penalties and maintaining compliance with the state’s regulations.
