Chicago Tax Guide: Navigating Illinois Flat Tax and City Fees

Chicago residents benefit from Illinois's flat 4.95% income tax rate — meaning everyone pays the same percentage regardless of income. While this is lower than progressive-tax states for high earners, Chicago layers on additional taxes and fees that can catch newcomers off guard.

Understanding Illinois Flat Tax

Unlike states with progressive brackets, Illinois charges a flat 4.95% on all taxable income. For a $100,000 salary, that is $4,950 in state tax. The simplicity is a benefit for planning, but it means lower-income residents pay a higher effective rate compared to progressive states.

Chicago's Hidden Tax Layers

While Chicago does not have a city income tax, it makes up for it with some of the highest sales taxes in the nation (10.25%), a cloud tax on streaming services, and various amusement taxes. Budget an extra 2-3% of your income for these additional costs.

Property Tax Relief Programs

Cook County offers several property tax exemptions: the Homeowner Exemption ($10,000 reduction in assessed value), the Senior Citizen Exemption, and the Senior Freeze. If you own property in Chicago, ensure you are claiming all applicable exemptions.

Retirement Income Advantages

One major benefit of Illinois: retirement income is completely exempt from state income tax. Social Security, pensions, 401(k) distributions, and IRA withdrawals are all tax-free at the state level. This makes Chicago an attractive option for retirees.