Illinois Income Tax: Flat 4.95% Rate and How It Taxes RSUs

Illinois income tax is a flat 4.95% rate that applies to all income, including RSU vesting, ISO and NSO gains, and capital gains. Because the rate is flat, there is no bracket-driven withholding gap like high-tax states have, but the 4.95% still stacks on top of your federal tax on every dollar of equity income.

If you work in tech in Chicago or anywhere in Illinois, your state tax story is refreshingly simple compared with California or New York — one rate, every dollar. But "simple" doesn't mean "small," and the way the flat rate interacts with a big RSU vest or an ISO exercise is worth understanding before tax season. This guide covers the Illinois income tax rate and exactly how it treats each kind of equity comp.

Illinois Income Tax Rate (Flat 4.95%)

Illinois levies a flat 4.95% income tax on essentially all individual income, regardless of how much you earn or your filing status (Illinois Department of Revenue). Unlike progressive states, there are no brackets to climb — the first dollar and the millionth dollar are taxed at the same rate.

That single rate is the defining feature of Illinois taxation. As the state describes its own system:

"Illinois has a flat-rate individual income tax, which means everyone's income is taxed at the same rate."

— Illinois Department of Revenue

It means your state tax is trivially easy to estimate: multiply your Illinois taxable income by 4.95%. For equity holders, it also means none of the bracket-creep surprises that catch California earners, where stacking a big vest pushes income into higher and higher tiers. For the broader picture of how states compare, see our state income tax guide.

Illinois did attempt to move to a graduated "fair tax" structure a few years ago, but voters rejected the constitutional amendment, so the flat rate remains the law. For planning purposes, treat 4.95% as a stable, predictable number — there's no schedule to look up and no marginal-bracket math to do. The flat structure also means Illinois has no state standard deduction in the federal sense; instead it allows a personal exemption allowance that reduces taxable income modestly, with the 4.95% applied to the remainder.

How Illinois Taxes RSUs

Illinois taxes RSU vesting as ordinary income at the flat 4.95% rate, on the full fair market value of the shares when they vest. RSUs are ordinary compensation income federally (IRS Publication 525), and Illinois follows that treatment, applying its single rate to the same amount included in your federal wages.

The chart below shows how the federal portion of your RSU tax climbs with income — the Illinois 4.95% sits on top of whichever federal bar applies to you.

The takeaway: because Illinois is flat, the state piece is a predictable 4.95% no matter how large the vest, while the federal piece is where the real rate escalation happens. A $150,000 vest carries roughly $7,425 of Illinois tax (4.95%) on top of the federal bill. For the vest-by-vest mechanics, see our Illinois RSU vesting tax breakdown and the general guide to how RSUs are taxed.

Here's how the flat rate scales across a few common vest sizes, so you can read off the Illinois piece at a glance:

The numbers are linear — there's no point at which a larger vest pushes you into a higher Illinois rate, because there isn't a higher rate to reach. That predictability is genuinely useful for cash planning: you can set aside 4.95% of each vest for Illinois and know it's covered, then focus your attention on the far larger and more variable federal piece. Just remember the state tax is on top of, not instead of, the federal tax on the same income — the 4.95% is additive.

How Illinois Income Tax Treats ISOs and NSOs

Illinois conforms to the federal treatment of incentive stock options, which means a qualifying ISO exercise creates no Illinois ordinary income at exercise — just as it creates none for federal regular tax. Critically, Illinois has no state-level alternative minimum tax, so unlike California, an ISO exercise does not trigger a separate Illinois AMT. The AMT exposure on an ISO exercise-and-hold is purely federal (IRS About Form 6251).

NSOs work the other way: the spread at exercise is ordinary income federally and is therefore subject to Illinois's 4.95% rate the same year. The practical upshot for Illinois ISO holders is that the alternative minimum tax planning you do is a federal exercise — Illinois adds its flat rate only when you eventually sell and recognize a gain, or on the ordinary income from an NSO or a disqualifying disposition.

This is one of the bigger advantages of holding ISOs in Illinois rather than California. In California, an ISO exercise can trigger both federal AMT and a separate state AMT on the same bargain element, doubling the surprise. In Illinois, the bargain element on an exercise-and-hold is a federal AMT item only — the state simply isn't in the AMT business. So an Illinois resident weighing a large ISO exercise is solving a purely federal optimization: stay under the federal AMT break-even, spread exercises across years if needed, and the only Illinois consequence arrives later, at 4.95%, when shares are sold. That makes the exercise decision meaningfully cleaner to model than in a conforming-AMT state.

Illinois Capital Gains

Illinois does not offer a preferential rate for capital gains — they are taxed as ordinary income at the same flat 4.95%. There is no separate long-term capital-gains schedule at the state level, so whether you hold for a day or a decade, Illinois takes 4.95% of the gain.

The chart puts Illinois in context against higher-tax states. At 4.95%, Illinois sits far below California's top 13.3% rate and below New York's top rates, but well above the zero owed in no-income-tax states. For a tech employee selling appreciated RSU or ISO shares, that 4.95% applies on top of the federal long-term capital-gains rate of 0/15/20%.

This matters most on a large exit. Say you sell ISO shares for a $500,000 long-term gain. Federally you might pay 20% plus the 3.8% net investment income tax; Illinois adds its flat 4.95% — roughly $24,750 — on the same gain, with no holding-period discount to soften it. Because Illinois doesn't distinguish short-term from long-term, the only rate lever you have is federal: holding for the long-term federal rate lowers the federal slice, but the Illinois 4.95% is the same either way. That's a simpler trade-off than in California, where the state itself also taxes the full gain at high ordinary rates, but it's still real money you should plan for rather than discover at filing.

Illinois Withholding on RSU Vesting

Illinois does not publish a separate flat "supplemental" withholding rate the way the federal government's 22% or California's 10.23% work — instead, withholding on RSU vesting and other supplemental wages is computed using the state's standard withholding method at the same 4.95% rate. In practice, that means the amount withheld for Illinois on a vest tends to line up closely with what you actually owe the state, because there's only one rate to match.

This is a meaningful contrast with the federal side. Federally, the flat 22% supplemental rate routinely under-withholds a high earner who really owes 32–37%, creating the classic April shortfall covered in our RSU withholding gap guide. In Illinois, since both the withholding and the liability sit at 4.95%, there's no equivalent state-level gap to chase — the leak, if any, is almost entirely federal. The one caveat is to confirm your employer is actually withholding Illinois tax on the vest and not treating you as out-of-state; check your vest pay stub for the Illinois line.

Illinois Residency and Equity Income

Illinois taxes its residents on all income and taxes nonresidents on Illinois-source income. For a tech employee who works in Illinois, RSU vesting and option income earned for that work is Illinois-source. If you move into or out of Illinois mid-year, your equity income is generally allocated based on where you performed the work during the vesting period, the same work-day logic that applies across states — our guide to moving states mid-year with equity walks through that allocation. The flat rate keeps the resident side simple, but a mid-year move still requires a part-year or nonresident allocation, so keep records of when you worked where.

Planning Notes for Illinois Tech Employees

Because the rate is flat, Illinois planning is less about bracket management and more about cash flow and federal coordination:

• Estimate the flat 4.95% on every vest and confirm your withholding covers it; if not, make estimated tax payments to avoid a balance due.
• Coordinate ISO exercises at the federal level — Illinois adds no state AMT, so the timing question is federal, mapped to your effective rate.
• Don't expect a capital-gains break — Illinois taxes gains at the same 4.95%, so the only rate relief is federal.
• Set aside 4.95% of each vest and sale in a separate account; the flat rate makes the state reserve easy to compute exactly.
• Verify Illinois withholding appears on your vest pay stub, especially after a job change or a move, so you're not surprised by an unwithheld state balance.

The headline for Illinois equity holders is that the state rarely creates the nasty surprises that high-tax, AMT-conforming states do. Your planning energy is best spent on the federal side — the withholding gap, AMT timing, and bracket management across years — while treating the Illinois 4.95% as a fixed, easily budgeted line. Predictable isn't the same as free, but it does mean you can plan around it with confidence.

Frequently Asked Questions

What is the Illinois income tax rate? Illinois has a flat 4.95% income tax that applies to all individual income regardless of amount or filing status.

Does Illinois tax RSUs? Yes. RSU vesting is taxed as ordinary income at the flat 4.95% rate on the full fair market value at vest, the same amount included in your federal wages.

Does Illinois have a state AMT? No. Illinois has no state-level alternative minimum tax, so the AMT exposure from an ISO exercise-and-hold is purely federal — unlike California, which layers its own AMT on top.

Does Illinois tax capital gains? Yes, Illinois taxes capital gains as ordinary income at the flat 4.95% rate. There is no preferential long-term capital-gains rate at the state level.