Illinois in 2026: what the legislature did and did not do

For the ordinary Illinois taxpayer, the 2026 legislative year is a story of what did not happen. The rate did not change. The retirement exemption did not change. The state did not adopt the federal deductions for tips, overtime or seniors, and did not raise the $4 million estate tax line. What the General Assembly did do was aimed almost entirely at businesses: it kept Illinois out of the new federal 100% bonus depreciation in December 2025, and in June 2026 it passed a budget that raises roughly $815 million (verify) from corporations, social media platforms, digital asset exchanges and sellers of small business stock, most of it starting in 2027. For nearly everyone the 2026 return will look like the 2025 return with a $75 larger exemption; the exception is anyone who sold qualified small business stock in 2026.

The reason is structural. Illinois starts its return from federal adjusted gross income, and the federal changes of 2025 were mostly deductions taken after AGI. They passed Illinois by without a vote. The state gained revenue it never had to legislate, and the bills to give it back have not left committee.

December 2025: Senate Bill 1911

The federal tax law of July 2025 restored 100% bonus depreciation for property acquired after January 19, 2025, and added a new section 168(n) allowing full expensing of certain production buildings. Both would have flowed into Illinois income automatically, because depreciation is taken above the AGI line, and the state’s budget office put the cost at $267 million (verify) in the 2026 budget year alone.

Senate Bill 1911, passed in the fall veto session and signed December 12, 2025 as Public Act 104-0453, closed that door. Illinois had already declined to follow bonus depreciation for years; the bill extended the add-back to the new 100% bonus and to section 168(n), effective for tax years beginning in 2026. A sole proprietor, landlord or farmer who takes bonus depreciation federally adds it back on Form IL-4562 and Schedule M, then subtracts ordinary depreciation each year until the asset is fully written off or sold. Over the asset’s life Illinois allows the same total deduction; it just refuses to allow it all at once.

The same bill made the pass-through entity tax election permanent (it had been due to expire after 2025), conformed the state’s treatment of foreign corporate income to the new federal terms, and made permanent the excess business loss limit for trusts and estates. None of that touches a wage earner or a retiree.

June 2026: the budget

The fiscal year 2027 budget, about $55.9 billion, was passed at the end of May and signed June 16, 2026. Its revenue bill, Senate Bill 3019, enacted as Public Act 104-0468, is where the tax changes are. Most of them take effect in 2027, not 2026.

The one line in that table that can reach an individual’s income tax return is the small business stock change. Federal law lets a founder or early investor exclude up to $10 million of gain on qualified small business stock held five years or more, and the 2025 federal law expanded it. Illinois follows federal AGI, so the excluded gain never appeared on the Illinois return either. The budget law requires individuals, trusts, estates and partnerships to add that gain back for tax years ending on or after December 31, 2026. For a calendar-year filer that is the 2026 return, so a sale closed during 2026 is taxed by Illinois at 4.95% even though the federal return excludes it. An earlier version of this page said 2027; the published summaries of the law say 2026. Anyone who sold QSBS in 2026 should raise it with their preparer before filing and watch for the Department’s instructions.

Two things the budget did not do matter as much. The share of income tax revenue passed through to cities and counties stays at 6.47% (verify), rather than the cut the governor proposed, which takes some pressure off local property tax levies. And a proposed sweep of sales tax on candy, soft drinks and grooming products was dropped (verify).

What was filed and did not move

Tips and overtime. House Bill 1750 would create Illinois deductions for tips and for overtime pay included in federal AGI, matching the federal deductions enacted in 2025. It was filed in January 2025, referred to the House Rules Committee on January 28, 2025 (verify), and has not been heard since. It picked up a dozen co-sponsors in May 2026 as the session closed (verify), which is a sign of political interest and not of movement. Two companion bills, HB 1898 and HB 2735, sit in the same committee. Tips and overtime remain fully taxable in Illinois at 4.95%, and because the federal deductions are below the line, there is no add-back to make; the income simply never left.

The senior deduction. No bill was filed to match the federal $6,000 (verify) deduction for people 65 and older. Illinois has its own $1,000 age exemption and exempts all retirement income, so there was little constituency for one.

The estate tax. The Family Farm Preservation Act, House Bill 2677 and Senate Bill 2970 (verify), would raise the exemption from $4 million to $6 million for farmland passing to heirs who keep farming. Farm groups lobbied for it through the spring; the governor said he was open to it if the revenue cost was manageable (verify); it stayed in committee. House Bill 2601, raising the exemption to $8 million for everyone, was re-referred to Rules in March 2025 (verify) and died there. The line is still $4,000,000, and it is still a cliff.

The rate. No bill to change the 4.95% rate advanced, and there was no constitutional question on the November 3, 2026 ballot. The 2020 vote that rejected graduated rates is still the last word.

Grocery tax. This one did happen, but earlier: the 2024 budget repealed the state’s 1% grocery sales tax effective January 1, 2026 and let cities and counties adopt a local 1% in its place. Many did. The Department of Revenue’s rule is that the combined grocery rate anywhere cannot exceed what it was on December 31, 2025, so no one pays more; some pay 1% less.

What this means for the 2026 return

• Wage earners: nothing changed except the exemption, $2,925 per person. Tips and overtime are taxed.
• Retirees: nothing changed. All retirement income is still subtracted on line 5.
• Homeowners: nothing changed on the return. The property tax credit is still 5% of the bill under the AGI limits.
• Families: the child tax credit is in its second year at 40% of the Illinois EITC.
• Business owners, landlords and farmers with bonus depreciation: Form IL-4562 is required for 2026, and the add-back is larger than it has been since 2022 because the federal percentage is back at 100%.
• Owners of S corporations and partnerships: the pass-through entity tax election is permanent; it is made by the entity, not the owner.
• Anyone who sold qualified small business stock in 2026: Illinois adds the federally excluded gain back on the 2026 return.
• Estates: the $4 million line is unchanged. Nothing on the 2026 income tax return, but it governs planning for anyone near it.