Moving to Illinois

Illinois taxes its residents on everything they earn, wherever they earn it, and taxes nonresidents only on income from Illinois sources. That one sentence decides most cross-border questions. A resident who works in Indiana owes Illinois tax on the Indiana wages and takes a credit for the Indiana tax. A Wisconsin resident who works in Chicago owes Illinois nothing on the wages, because the two states have agreed to leave each other’s commuters alone. And a person who moved during 2026 is both: a resident for part of the year and a nonresident for the rest, on one return with one extra schedule.

The mechanics are simpler than in most states because Illinois has a flat 4.95% rate and no brackets to pro-rate. What is not simple is the residency question itself. Illinois has no day count in its statute. Residency turns on domicile, which is a matter of intent and facts, and on whether a person is in the state for something other than a temporary or transitory purpose. People who keep a house in two states, retirees who winter in Florida and summer in Lake County, and remote workers whose employer sits in a different state from their desk all need to know which side of that line they are on before the return is started.

Who is a resident

Illinois regulations define a resident as someone domiciled in Illinois, or someone present in Illinois for other than a temporary or transitory purpose. Domicile is the place a person treats as a true, fixed, permanent home, the place they intend to return to when away. A person can have only one domicile at a time, and keeps the old one until a new one is established. Someone who is domiciled in Illinois stays a resident even while living elsewhere, unless the absence is for other than a temporary or transitory purpose. A two-year job posting with a plan to come back is temporary; a retirement to Arizona with no plan to return is not.

The regulation also carries a presumption that catches snowbirds. A person who was an Illinois resident in one year is presumed to be a resident the next year if they spend more days in Illinois than in any other state. The presumption can be overcome, but only by clear and convincing evidence. Someone who sold the Illinois house, registered to vote in Florida, moved the doctor and the bank, and still spends seven months a year in Illinois has a weak case. The same person who spends five months here has a stronger one, but the days are evidence, not the test.

Changing domicile takes two things together: physically moving to the new place and intending to make it the permanent home, while giving up the intent to return. The regulation says a person who enters Illinois intending to stay indefinitely acquires an Illinois domicile the moment they arrive. The reverse is true on the way out. That is why the move date on a part-year return is a real date, usually the day the household actually relocated, not the closing date on the house or the day the lease was signed.

The move-year return

A part-year resident files the ordinary IL-1040 and attaches Schedule NR, which splits every line of federal income into an Illinois column and a non-Illinois column. The rule from IDOR’s Publication 119 is that income received while domiciled in Illinois is taxed in full regardless of where it came from, and income received while not domiciled in Illinois is taxed only if it came from Illinois sources. The word that matters is received. Wages are Illinois income if the paycheck arrived while the person lived here. A bonus paid in March for last year’s work goes to whichever state the person lived in when it was paid, not where the work was done.

Because Illinois starts from federal AGI, the subtractions follow the same split. Retirement income is subtracted in full on the Illinois return, so a retiree who moved in from a state that taxes pensions will see the pension taxed by the old state for the months before the move and by nobody for the months after. Social Security is never taxed by Illinois. The exemption allowance, $2,925 per person for 2026, is prorated on Schedule NR by the share of total income that is Illinois income, so a person with half their year’s income in Illinois gets about half the allowance.

The other direction is where returns go wrong. Someone who left Illinois in June and kept an Illinois rental, an Illinois business interest, or an Illinois job they commute back to, still has Illinois-source income after the move and still reports it in the Illinois column. The move ends residency; it does not end Illinois’s claim on what is earned here.

The reciprocal four: Iowa, Kentucky, Michigan, Wisconsin

Illinois has reciprocal agreements with its four neighbors to the west, south-east and north. A resident of Iowa, Kentucky, Michigan or Wisconsin who works for an Illinois employer pays no Illinois tax on wages, salary, tips or commissions from that job; the home state taxes them instead. An Illinois resident working in any of those states gets the same treatment in reverse. The worker files Form IL-W-5-NR, Employee’s Statement of Nonresidence in Illinois, with the Illinois employer, and the employer withholds nothing for Illinois. The other states have their own version of the form for Illinois residents working there.

The agreements cover compensation and nothing else. Publication 119 is explicit that they do not apply to other Illinois income, and it names lottery, gambling and sports wagering winnings. A Wisconsin resident with a Chicago job and a Rockford rental pays no Illinois tax on the job and full Illinois tax on the rental. Self-employment income is not wages, so a Michigan consultant with Illinois clients is outside the agreement and inside the ordinary nonresident rules.

Two things trip people up. First, if the employer withheld Illinois tax anyway, usually because no IL-W-5-NR was on file, the fix is an Illinois nonresident return with Schedule NR showing zero Illinois income and claiming the withholding back. It is not a credit on the home-state return; the home state will say, correctly, that Illinois had no right to the money. Second, the reverse mistake: an Illinois resident whose Wisconsin employer withheld Wisconsin tax cannot take a Schedule CR credit for it. IDOR’s Schedule CR instructions say the refund has to come from Wisconsin. The exception is local tax. The agreements do not stop a Kentucky city or county from taxing an Illinois resident’s wages, and Illinois does allow the credit for that local tax.

Everyone else: Indiana, Missouri and the 30-day rule

Indiana is not a reciprocal state, which surprises people on both sides of the Calumet. An Illinois resident working in Indiana files an Indiana nonresident return, pays Indiana state tax and usually Indiana county tax, and then claims a credit on Illinois Schedule CR for both. The credit is for income taxes paid to another state or to its political subdivisions, counties and cities included, as long as the tax would be deductible as state and local income tax on a federal Schedule A. The credit cannot exceed the Illinois tax on the same income, so when the other state’s rate is higher than 4.95%, the difference is simply lost; when it is lower, Illinois collects the gap. Missouri, and especially St. Louis with its 1% earnings tax, works the same way for Metro East commuters.

For nonresidents coming into Illinois from a non-reciprocal state, Public Act 101-0585 set a threshold beginning with tax year 2020. A nonresident employee’s pay for work performed in Illinois is taxable only once the employee has spent more than 30 working days in Illinois during the year, and the employer’s withholding obligation tracks the same count. Once past the line, the taxable share is the pay for the Illinois days, not the whole salary. A Texas engineer sent to a Naperville plant for three weeks owes Illinois nothing; sent for two months, she owes 4.95% on the pay for the Illinois days and her home state, if it has an income tax, gives her a credit.

The same act helped Illinois residents who work remotely for employers in states with aggressive sourcing rules. When another state taxes an Illinois resident on days worked at home in Illinois, the Schedule CR credit is figured as if that state had applied Illinois law, so the resident is not left paying both. The arithmetic is on Schedule CR and in Publication 111; it is one of the few places where the Illinois return does something more complicated than a flat percentage.

Withholding and estimated payments after a move

The employer withholds for the state in the payroll address until told otherwise, so the single most useful thing a person can do in a move year is update the W-4 and the state form in the same week as the move. An Illinois resident arriving from a no-tax state will have had no state withholding and may owe Illinois 4.95% of five months of salary in April. Illinois requires estimated payments when the expected balance after withholding and credits is more than $1,000, due April 15, June 15, September 15 and January 15, with safe harbors at 90% of this year’s tax or 100% of last year’s. A newcomer has no Illinois prior-year tax, so the 100% safe harbor is zero and the only protection is paying as the income comes in.

Retirement income is withheld differently. Illinois does not tax it, so an Illinois retiree should ask the pension or IRA custodian to stop any Illinois withholding; a retiree who just left Illinois for a state that does tax pensions should start the new state’s withholding. The 1099-R will show whatever the custodian did, and the state boxes are often wrong for a year after a move.