Illinois LLC Taxes

An Illinois LLC is taxed at three levels: federal income tax on the profits, Illinois state rules, and payroll or sales taxes that depend on what the business does. Illinois taxes personal income, so LLC owners report their share of profit on a Illinois return in addition to the federal one. Illinois also has an entity-level tax to plan for: Personal Property Replacement Tax 1.5%.

Federal tax treatment

By default the IRS treats a single-member LLC as a disregarded entity, so profit is reported on Schedule C of the owner's personal return. A multi-member LLC is taxed as a partnership and files Form 1065, with each member receiving a Schedule K-1. Either can elect to be taxed as an S corporation (Form 2553) or a C corporation (Form 8832). See the IRS page on LLCs.

Self-employment tax

Members who work in the business generally pay self-employment tax of 15.3% on net earnings: 12.4% for Social Security up to the annual wage base set by the SSA, and 2.9% for Medicare with no cap, plus an additional 0.9% Medicare tax at higher incomes. An S corporation election can reduce this for profitable businesses, but it requires running payroll and paying yourself a reasonable salary. Our LLC vs S-Corp comparison walks through the trade-off.

Illinois state taxes

Sales tax, payroll tax, and local business taxes sit on top of these. If you sell taxable goods or services, register with the Illinois tax agency for a sales tax permit. If you hire, you will register for state unemployment insurance and withholding.

Estimated tax payments

LLC owners usually have no employer withholding, so they pay federal estimated tax each quarter, and Illinois estimated tax as well. Missing estimates can trigger underpayment penalties, so many owners set aside a percentage of every payment they receive.

Illinois specific notes

Illinois LLCs are subject to the Personal Property Replacement Tax of 1.5% on net income, in addition to flow-through state income tax on members.

Illinois LLC at a glance

Tax rules and thresholds change, and this page is general information. Confirm details with the Illinois tax agency and a licensed CPA before you file.