Illinois · LLC tax election

Illinois LLC: S corp or C corp?

Illinois taxes S corporations a little even though it calls them pass-throughs.

As of 5 min readVermilion Vitez Team

See Illinois at a glance

Short answer

Illinois taxes a C corporation 7% income tax plus 2.5% replacement tax. An S corporation pays only the 1.5% replacement tax, with the income tax falling on your own return at a flat 4.95%. For a profitable business, S status usually wins, but the replacement tax means it is not free.

Last checked .

Illinois at a glance

QuestionIllinois
S election recognized?Yes, Illinois follows the federal election1
Separate state form and deadlineNo separate state form2
Tax the S corp itself pays1.5% of S corp net income3
C corp rate and minimum7% income tax plus 2.5% replacement tax4
Entity tax on a default LLCA disregarded one-owner Illinois LLC has no Illinois income tax filing requirement; its income is reported on its owner's return.5
Personal income taxYes, on wages and pass-through income6

What is different about Illinois?

Illinois is the state where 'S corporations pay no state tax' stops being true. The state taxes C corporations 7% in income tax plus 2.5% in personal property replacement tax. An S corporation skips the 7% but still owes 1.5% replacement tax on its Illinois net income. Partnerships and LLCs taxed as partnerships pay the same 1.5%. Then your share of profit is taxed on your own return at a flat 4.95%. Add it up and the entity pays 1.5% plus you pay 4.95%, versus 7% plus 2.5% at the C corporation level before dividends. An optional 4.95% pass-through entity tax also exists for S corporations.

Does Illinois recognize a federal S corp election?

Illinois treats an S corporation as a pass-through for income tax, so the 7% corporate income tax does not apply. It does pay the 1.5% personal property replacement tax on income taxable to Illinois. Shareholders then report their share and pay Illinois income tax at a flat 4.95%. An S corporation can also elect to pay a 4.95% pass-through entity tax, made on Form IL-1120-ST.

Does my LLC need a separate Illinois election or form?

Illinois has no separate S election; an S corporation required to file federal Form 1120S files Illinois Form IL-1120-ST, due the 15th day of the 3rd month after year-end.2

What does Illinois tax an S corp or LLC at the entity level?

  • An Illinois S corporation pays a 1.5% personal property replacement tax on its Illinois net income.3
  • A disregarded one-owner Illinois LLC has no Illinois income tax filing requirement; its income is reported on its owner's return.5

Is a Illinois LLC taxed as a C corp ever better?

An Illinois C corporation pays 7% income tax plus a 2.5% personal property replacement tax on net income. That is the highest rate in this group of states. Dividends are then taxed again on your personal return at 4.95%. The combined load is why many Illinois owners look hard at S status.

Run your Illinois numbers

In Illinois the S election starts paying off early, because the gap between the 7% plus 2.5% at a C corporation and the 1.5% at the S corporation is wide. The state cost to weigh against it is the 1.5% replacement tax, which you owe whether or not you elect pass-through entity tax. Federal payroll savings sit on top of that.

Result

$0LLC tax
$0S-corp tax
$0Costs
Net yearly difference$0

How much would a Illinois LLC owner save as an S corp?

Taxed asAt $80,000 profitAt $150,000 profit
Default LLC$11,304self-employment tax $11,304 + Illinois LLC tax $0$21,194self-employment tax $21,194 + Illinois LLC tax $0
S corp$9,824payroll tax $7,344 + Illinois S corp tax $480 + $2,000 payroll and prep$16,670payroll tax $13,770 + Illinois S corp tax $900 + $2,000 payroll and prep
C corp$18,466payroll tax $7,344 + Illinois tax $3,040 + federal $6,082 + $2,000 payroll and prep$32,873payroll tax $13,770 + Illinois tax $5,700 + federal $11,403 + $2,000 payroll and prep

Assumes a 60% salary8 and a single filer. Income tax is left out. C corp dividends are taxed again.

When is the Form 2553 deadline for a Illinois LLC, and what if I miss it?

2 mo. 15 daysinto the tax year, for federal Form 2553IRS instructions

Late relief: federal steps, deadline guide.

What to do next

No LLC yet

How to start one, or have us form it from $123.75.

Have an LLC

Registered agent $74.25/yr, annual report.

Ready to elect

LLC vs S corp guide, election deadline, Form 2553 filed for $165.

More on Illinois: How to start a Illinois LLC · How to start a Illinois corporation · Illinois LLC cost · Illinois annual report · Annual report late fees by state

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Common questions

Do Illinois S corporations pay state tax?

They pay the 1.5% personal property replacement tax, but not Illinois income tax. The Department of Revenue says S corporations and partnerships do not pay Illinois income tax; the owners do.

What is the Illinois corporate tax rate?

7% income tax plus 2.5% personal property replacement tax, for corporations other than S corporations.

What is the Illinois personal property replacement income tax?

A tax on net income that replaced local personal property taxes. It is 2.5% for corporations and 1.5% for S corporations, partnerships and trusts.

What is the Illinois pass-through entity tax?

An optional 4.95% tax an S corporation or partnership can elect to pay at the entity level. Each owner receives a credit for their share, per the Department of Revenue's pass-through entity tax guidance.

What is the Illinois individual income tax rate?

A flat 4.95% of net income, the rate the Department of Revenue lists for individuals effective July 1, 2017.

Sources 9 links, checked Nov 6, 2026
  1. Illinois treats S corporations as pass-through for income tax; the shareholders pay Illinois income tax, not the company. tax.illinois.gov, checked Nov 6, 2026
  2. Illinois has no separate S election; an S corporation required to file federal Form 1120S files Illinois Form IL-1120-ST, due the 15th day of the 3rd month after year-end. tax.illinois.gov, checked Nov 6, 2026
  3. An Illinois S corporation pays a 1.5% personal property replacement tax on its Illinois net income. tax.illinois.gov, checked Nov 6, 2026
  4. An Illinois C corporation pays 7% income tax plus 2.5% replacement tax. tax.illinois.gov, checked Nov 6, 2026
  5. A disregarded one-owner Illinois LLC has no Illinois income tax filing requirement; its income is reported on its owner's return. tax.illinois.gov, checked Nov 6, 2026
  6. Illinois taxes individuals at a flat 4.95%. tax.illinois.gov, checked Nov 6, 2026
  7. IRS: Form 1120 instructions, C corp rate irs.gov, checked Nov 6, 2026
  8. IRS: S corp reasonable compensation irs.gov, checked Nov 6, 2026
  9. IRS: Form 2553 instructions irs.gov, checked Nov 6, 2026

Last verified Nov 6, 2026.

This page explains the rules; it is not tax advice. Run your numbers with a CPA or enrolled agent before you elect.

Last verified Nov 6, 2026.

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