The Illinois estate tax: the $4 million line

Illinois is one of about a dozen states with its own estate tax, and its line is low: $4,000,000, unchanged since 2013 and not indexed, against a federal exemption of $15,000,000 for 2026. A house in the suburbs, a 401(k), a life insurance policy and a half-interest in a family farm can get a widow there without anyone having thought of themselves as wealthy. The exclusion is a threshold, not a deduction. An estate of $3,999,999 pays nothing; an estate of $5,000,000 pays $285,714, and the first dollars over the line are taxed at a marginal rate of roughly 28% (verify), higher than anything else in the schedule. The return is Form 700, filed with the Attorney General, not the Department of Revenue, and the tax is due nine months after death.

There is no Illinois inheritance tax on the people who receive the money, and no Illinois gift tax. Lifetime gifts still matter, because taxable gifts are added back to the estate when deciding whether the $4 million line has been crossed.

Who has to file

Form 700 is required when the gross estate, plus adjusted taxable gifts made during life, exceeds $4,000,000, whether or not a federal Form 706 is due. The gross estate is the federal definition: everything the decedent owned or controlled at death at fair market value, including the home, retirement accounts, brokerage accounts, the death benefit of life insurance the decedent owned, the decedent’s half of joint property, and property in a revocable trust. Debts, administration costs, and bequests to a spouse or charity come off afterward to reach the taxable estate, but the filing test is on the gross figure. A $4.5 million gross estate with a $600,000 mortgage still files, even though it may owe little or nothing.

Residents are taxed on everything except real estate and tangible property in another state. Nonresidents who own Illinois real estate or tangible property file too, on the Illinois share. In both cases the tax is figured as if every asset were in Illinois and then multiplied by the ratio of Illinois assets to total assets, which is why a resident with a Florida condominium pays a little less than a neighbor with everything here.

How the tax is figured

The Illinois rate schedule is borrowed from a federal table that no longer exists: the state death tax credit under Internal Revenue Code section 2011 as it stood on December 31, 2001. That table ran from 0.8% on the first dollars over $40,000 to 16% on amounts over $10,040,000. Illinois computes a tentative tax from that table on the whole taxable estate, then applies its own $4 million exclusion in a way that is interrelated with the tax itself. The arithmetic is circular, the Attorney General provides an online calculator to do it, and no one should attempt it by hand. The practical result is a schedule that looks nothing like a flat 16%:

$0 and $285,714 are the Attorney General’s own published examples; the larger figures are from the Attorney General’s calculator and should be rerun for any real estate (verify). The $3,000,100 estate with $1,000,000 of lifetime taxable gifts in the same examples owes $28: the gifts carry it over the line by $100.

The steepest part of the curve is the first million over the line. Between $4 million and $5 million, each dollar costs about 28.6 cents; above $6 million the marginal rate settles toward the 16% top of the old table. The Illinois tax is deductible on the federal estate tax return, but for an estate under $15 million there is no federal tax to reduce, so the Illinois tax is simply the cost.

Married couples: the portability trap

Federal law lets a surviving spouse inherit the unused part of the first spouse’s $15 million exemption by filing a Form 706 on time, so a couple can pass $30 million with no planning beyond that one election. Illinois has no portability. Each spouse has a $4 million exclusion, and when everything passes to the survivor outright, the first spouse’s exclusion is wasted: the marital deduction makes the first estate zero, and the second estate holds everything. A couple worth $7 million who leave it all to each other pay nothing at the first death and roughly $600,000 (verify) at the second. The same couple with wills that route $4 million into a credit shelter trust at the first death, or that make an Illinois-only QTIP election, can pay nothing at either.

The Illinois QTIP election is the tool for this. Since 2009 (verify) an estate can elect marital-deduction treatment for Illinois on a different amount than for federal purposes: typically, enough to bring the Illinois taxable estate to exactly $4 million while using none of the federal exemption. The election is made on a timely Form 700, with a list of the property, the dollar amount and the survivor’s Social Security number. It only works if the will or trust creates property that qualifies, which is why a plan brought from Florida or Texas should be reread here.

Filing, paying, and the farm rules

Form 700 goes to the Attorney General’s Revenue Litigation Bureau, in Chicago for Cook, DuPage, Lake and McHenry counties and in Springfield for everywhere else, with a copy of the federal Form 706 and its schedules and appraisals. If no federal return is being filed, the same information is submitted in an equivalent format. Payment goes separately to the State Treasurer, using the Treasurer’s estate tax payment form. Both are due nine months after the date of death. An extension of time to file or pay is available on request to the Attorney General, with Form 700-EXT, and a federal extension is honored; interest runs from the original due date regardless (verify).

Estates with a closely held business or farm have two federal elections Illinois also allows, even when no federal return is required. Special-use valuation under section 2032A values farmland at its agricultural use rather than its development value, within a federal cap of $1,460,000 for 2026 (verify), and requires the family to keep farming it for ten years. Installment payment under section 6166 spreads the tax on the business or farm portion over as long as fourteen years, with Illinois using Form 4350a. Both have strict tests and both must be elected on the original return.

Illinois has no separate farm exemption, and that is the current fight. HB 2677 and SB 2970, backed by the Farm Bureau, would raise the exclusion to $6 million for qualified farm heirs; the governor said in March 2026 that he could support a package aimed at small farms and small businesses, and the bill was still in committee when the spring session ended (verify 2026 session outcome). Estate tax receipts, about $300 million a year in the 2010s, have run over $600 million recently (verify), which makes any cut expensive and the $4 million line sticky.

What the income tax return sees

The estate tax leaves almost no mark on the heirs’ income tax returns. Inherited property takes a stepped-up basis for both federal and Illinois purposes, so the appreciation that drove the estate over $4 million is never taxed as income. Inherited IRAs are the exception: the money inside is ordinary income to the beneficiary as it comes out, and Illinois, which exempts retirement income to the original owner, exempts it to the beneficiary too (verify). The Illinois estate tax paid is not deductible on anyone’s income tax return. The estate itself files Form IL-1041 for income earned during administration, a separate matter from Form 700.