Illinois LLC Taxes: What You Need to Know for Compliance
Understand Illinois LLC tax obligations, including reporting requirements, employer taxes, and key deadlines to ensure compliance and avoid penalties.
Starting a Limited Liability Company (LLC) in Illinois comes with specific tax obligations. Failing to meet these requirements can lead to penalties, additional fees, or even loss of good standing with the state. Whether your LLC is new or established, knowing what taxes apply and when they are due is essential.
Illinois imposes various taxes on LLCs, including income taxes, sales taxes, employer obligations, and an annual filing requirement. Staying informed about these responsibilities ensures smooth business operations and prevents costly mistakes.
Requirements for LLC Income Reporting
Illinois LLCs report income based on their federal tax classification. Single-member LLCs are treated as disregarded entities by default, meaning their income is reported on the owner’s personal tax return using IRS Form 1040, Schedule C. Multi-member LLCs are classified as partnerships unless they elect corporate taxation, requiring them to file IRS Form 1065 and issue Schedule K-1s to each member.
LLCs electing corporate taxation report income on IRS Form 1120 and Illinois Form IL-1120, subjecting them to Illinois’ corporate income tax, currently 4.8% as of 2024. Pass-through LLCs do not pay this tax directly but must file an informational return with the state.
All LLCs operating in Illinois must obtain a federal Employer Identification Number (EIN) if they have employees or multiple members. Partnerships must submit Form IL-1065 to report each member’s distributive share. If an LLC has nonresident members, it may need to file Form IL-1023-C to withhold and remit Illinois income tax on their behalf. Noncompliance can result in penalties, including late fees and interest on unpaid amounts.
Illinois Replacement Tax Considerations
Illinois imposes a Replacement Tax to compensate local governments for revenue lost when the state eliminated personal property taxes on businesses.
LLCs taxed as corporations pay a 2.5% replacement tax on net income, while partnerships and S corporations pay 1.5%. These amounts are reported on Form IL-1120 for corporations or Form IL-1065 for partnerships. Even LLCs operating at a loss for income tax purposes may still owe replacement tax if they have taxable net income after adjustments.
LLCs with nonresident members may also need to withhold and remit replacement tax on their behalf. Failure to comply can result in penalties, including interest on unpaid balances and assessments from the Illinois Department of Revenue.
Sales and Use Levy
Illinois requires LLCs selling tangible personal property to collect and remit sales tax. The state sales tax rate is 6.25%, but local jurisdictions can impose additional taxes, bringing the total rate to over 10% in some areas. Businesses must determine the correct rate based on the location of the sale to avoid liabilities.
Use tax applies to purchases made outside Illinois for use within the state. If an LLC buys equipment, supplies, or inventory from an out-of-state vendor that does not collect Illinois sales tax, the business must self-report and remit use tax at the same rate as the sales tax. The Illinois Department of Revenue enforces compliance through audits, often identifying unpaid use tax through expense records and vendor invoices.
Certain exemptions apply. Resale certificates allow LLCs to purchase goods tax-free when those goods will be resold. Manufacturing machinery, specific farm equipment, and certain medical devices may also qualify for exemptions. Businesses must maintain proper documentation to substantiate exemption claims, as errors or missing records can lead to assessments of unpaid tax plus penalties.
Employer Taxes for LLCs With Employees
LLCs with employees must withhold federal income tax, Social Security, and Medicare contributions from wages while also paying the employer portion of these liabilities. Illinois requires businesses to withhold and remit state income tax from employee paychecks at a flat 4.95% as of 2024.
Additionally, LLCs must pay unemployment insurance tax to the Illinois Department of Employment Security (IDES). The standard new employer rate is 3.525% on the first $13,590 of each employee’s wages, though established businesses may have a different rate based on their experience rating. Late or inaccurate reporting can result in penalties, including interest on unpaid amounts and potential audits by IDES.
Businesses with payroll exceeding certain thresholds must also comply with the Illinois Secure Choice Retirement Savings Program, requiring them to either enroll employees in the state-sponsored plan or offer a qualified alternative.
Pass-Through Taxation
LLCs that do not elect corporate taxation benefit from pass-through taxation, meaning profits and losses flow directly to the owners’ personal tax returns. This avoids double taxation, which corporations face when paying corporate income tax and then distributing after-tax profits as dividends. LLC members report their share of earnings on their individual returns and pay Illinois’ personal income tax rate of 4.95%.
LLCs with nonresident members must ensure income derived from Illinois operations is properly allocated and may need to withhold state taxes on behalf of these owners. Additionally, members are responsible for self-employment taxes, covering Social Security and Medicare contributions at a combined rate of 15.3%. Estimated quarterly tax payments are often necessary to avoid penalties, as pass-through income is not subject to automatic withholding like wages.
Annual Filing and Payment Deadlines
All LLCs must submit an Annual Report to the Illinois Secretary of State by the first day of their anniversary month. The filing fee is $75, and failure to file on time results in a $100 late penalty. If an LLC remains delinquent for more than 180 days, it risks administrative dissolution, requiring reinstatement fees.
Tax deadlines depend on an LLC’s classification. Single-member LLCs report income with their personal returns, due April 15. Partnerships must file Form IL-1065 by March 15, while LLCs taxed as corporations follow the corporate tax deadline of April 15.
Sales tax, payroll tax, and withholding obligations may require monthly or quarterly filings, depending on the business’s revenue and payroll size. Missing these deadlines can lead to interest charges and penalties, making it essential for LLC owners to track due dates carefully.