Key figures
Illinois accounting
2026, with sources
- Personal property replacement tax
- 2.5%Charged on top of the income tax for C corporations; S corporations pay 1.5%.
- Net loss deduction cap
- $500,000 a yearTax years ending Dec 31, 2024 through before Dec 31, 2027; capped years don’t count toward the carryforward period.
- Net loss cap from 2027
- 15%–80% of incomeGreater of $500,000 or a share of net income: 15% for years ending in 2027, rising to 80% for years ending on or after Dec 31, 2031.
Two taxes on one base
Illinois taxes a C corporation twice on the same income: the 7% corporate income tax and the 2.5% personal property replacement tax, which replaced a local tax on business property in the 1970s. Both start from federal taxable income, run through the same Illinois additions and subtractions, and are paid on one return, Form IL-1120. For the state tax provision, treat them as one 9.5% rate on Illinois-apportioned income.
Illinois has rolling conformity: it starts from federal taxable income as the Internal Revenue Code reads for the year, then applies its own modifications. The modification startups notice is depreciation. Illinois adds back federal bonus depreciation and lets you subtract it back over the asset’s life, tracked on Form IL-4562, so fixed assets carry a different state basis and a deferred tax difference.
Apportionment and the unitary group
Business income is apportioned by a single sales factor. Sales of services are sourced to Illinois when the customer receives the benefit there, and service sales into a state where you are not taxable are “thrown out” of the factor entirely. Starting with tax years ending on or after December 31, 2025, unitary groups use the Finnigan method for the sales factor numerator, so a member’s Illinois sales count for the group even when that member alone has no Illinois nexus.
If you have a parent and subsidiaries that operate as one business, Illinois requires a combined unitary return with Schedule UB, filed by a designated agent. Estimated payments for the group are made on a combined basis under the designated agent’s FEIN.
What this means for the books
The $500,000 annual cap on the net loss deduction is the line item that surprises founders: a company with large federal NOLs can still owe Illinois tax in its first profitable year. In the provision, the capped amount stays a deferred tax asset; it is a timing difference, not a permanent one.
The cap doesn’t end in 2027. Public Act 104-0468 (the FY2027 revenue omnibus) makes it the greater of $500,000 or 15% of net income for tax years ending in 2027, rising each year to 80% from years ending on or after December 31, 2031. A worked example: a company with $3 million of Illinois net income in a 2026 tax year and $10 million of Illinois loss carryforward deducts $500,000, and pays 9.5% on the remaining $2.5 million, about $237,500, even though its federal return shows far less tax.
Deadlines
- 15th day of the 4th month after year end — Apr 15Corporation income and replacement tax return (calendar year)Form IL-1120
- 15th day of the 4th, 6th, 9th and 12th months of the tax yearQuarterly estimated payments when the expected liability is over $400Form IL-1120-V
The federal baseline
This page covers what Illinois adds. The federal rules underneath it apply here too.
Common questions
Is the Illinois corporate rate 7% or 9.5%?
Both. The 7% income tax and the 2.5% personal property replacement tax are computed on the same Illinois base income and reported together on Form IL-1120, so the effective state rate on a C corporation’s Illinois income is 9.5%. The replacement tax is a separate line, and some credits offset only one of the two.
Can we use our past losses against Illinois income once we turn profitable?
Not in full. For tax years ending on or after December 31, 2024 and before December 31, 2027, Illinois lets a corporation deduct at most $500,000 of carried-forward net loss a year. Years in which the cap bites are not counted against the carryforward period, so the loss is deferred rather than lost.
What happens to the Illinois loss cap after 2026?
Not in full there either. Public Act 104-0468, signed June 16, 2026, replaces the flat cap for tax years ending on or after December 31, 2027 with the greater of $500,000 or a percentage of net income: 15% for years ending in 2027, stepping up until it reaches 80% for years ending on or after December 31, 2031. A company with $4 million of Illinois net income in 2027 could deduct at most $600,000 of carryforward that year.
Accounting next door
- INIndiana accountingIndiana taxes C-corps at 4.9% on a single receipts factor, files separately, adds back bonus depreciation and lets 2022–2024 research costs be deducted in full.
- IAIowa accountingIowa taxes corporations at 5.5% on the first $100,000 and 7.1% above for 2026, apportions by a single sales factor, and follows the federal code on a rolling basis.
- KYKentucky accountingKentucky taxes corporations at 5% plus a limited liability entity tax with a $175 minimum, requires unitary combined returns, apportions on single sales factor, and decouples from bonus depreciation and Section 174A.
- MOMissouri accountingMissouri taxes corporations at a flat 4% on income apportioned by a single sales factor, with services sourced to the customer. There is no franchise tax.
- WIWisconsin accountingWisconsin taxes corporations at 7.9% on a single sales factor, requires combined reporting for unitary groups, disallows bonus depreciation and adds a 3% surcharge once receipts reach $4 million.
Founder guides on this
- US GAAPUS GAAP for early-stage startups, in plain EnglishAccrual accounting, revenue recognition (ASC 606), leases (ASC 842), stock compensation and capitalized software: what each means for a small company.
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- FundraisingAudit-ready books before your Series AInvestors, lenders and auditors ask for the same things: accrual statements, reconciled accounts and support for every balance. How to be ready first.
More of the Illinois guide
- ReceivablesReceivables and sales tax in IllinoisSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in IllinoisPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in IllinoisWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in IllinoisRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in IllinoisCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.