By Meredith Howard
Belleville News-Democrat
(TNS)
Illinois frequently lands among the top states for tax rates in various analyses, but does the Land of Lincoln really have higher taxes than most other states?
A March 3 report from financial website WalletHub named Illinois the No. 1 state in the nation for high overall tax rates, citing the state’s gas tax, real estate tax rates and income taxes.
In another recent report, two Illinois cities were named among the top 15 in the U.S. for the highest property tax burdens compared to typical incomes. In yet another, the state was named the ninth worst in the nation to retire, partly due to personal income tax rates. Tax preparation software company TurboTax has also named Illinois among the states with the heaviest overall tax burdens, with 10.2% of typical residents’ incomes going to sales, income, property and excise taxes.
A new federal policy means U.S. workers can now temporarily deduct tips from their federal income taxes, up to a $25,000 limit, but because the state is decoupling with the policy, Illinois tipped workers will still pay state income taxes on their tips.
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So what’s going on with tax rates in Illinois, and how do they compare to neighboring states? Here’s what to know.
Illinois’ ‘skewed’ tax system
Overall, Illinois has a “skewed” tax system, Frank Manzo IV, an economist with the Illinois Economic Policy Institute, said in a March 20 interview with the News-Democrat.
“We have the eighth most regressive tax system in the country, meaning that our state and local taxes are skewed against working- and middle-class families who pay higher shares of their incomes toward state and local taxes, compared to high-income earners,” Manzo said.
The regressive tax structure results in the state functioning as a high-tax state for working families, but a low-tax state for wealthy households, Manzo continued.
Illinois has a flat state income tax rate of 4.95%, while neighboring Missouri has seven income brackets to determine tax rates.
For highest overall state tax revenue as a percentage of personal income, Illinois ranked 15th in 2023, according to a report from the nonpartisan Commission on Government Forecasting and Accountability, an Illinois state government agency. However, the state ranks eighth nationally for local government tax revenue per capita.
“Because Illinois’ ranking in per-capita local government revenue is higher than its ranking in state government revenue, many argue that the State should take a larger role in financing programs,” the Commission on Government Forecasting and Accountability report reads. “They argue that local taxes need to be lowered, while increasing State tax sources to create a more ‘equitable’ system. Others argue that a reliance on property taxes gives local governments more local control and promotes a higher degree of accountability to their community. This debate will continue in the years to come, especially in the area of education funding.”
Several Democratic Illinois politicians, including Gov. JB Pritzker, have pushed for legislation aiming to establish a progressive income tax system in the state, but such a measure has yet to pass.
Some lawmakers have also proposed a 3% surtax on income exceeding $1 million. If this were enacted, it would generate around $4 billion in revenue for the state each year, Manzo said, and the idea some legislators have supported is to lockbox that potential revenue so it would be devoted to education or property tax relief.
“A millionaires’ tax could fully fund all public schools across the state under our evidence-based funding model,” Manzo said, “or it could cut property taxes for homeowners by around 15% or there could be some combination of the two.”
The typical property tax bill for an average Illinois homeowner who files income taxes is roughly $6,000 per year, Manzo continued, ranking eighth in the nation. The state’s property tax rates themselves are second only to New Jersey’s.
“Illinois property taxes are among the highest in the nation,” Manzo said.
The state does offer property tax relief programs for certain homeowners, including qualifying low-income residents older than 65 years of age.
The primary reason property tax rates are so high is because school districts rely on local property taxes.
“That is because our state funding for pre-K through 12 education has historically been one of the worst in the nation,” Manzo said.
However, the school funding method is slowly changing, Manzo continued, as the state contributes more money to the evidence-based funding model.
As to why state income tax is what it is, Manzo said the Illinois is “finally investing” in infrastructure improvements, as well as more in education, health care and human services than it was a decade or two ago.
“And of course, the state is paying down pensions from years of previous mismanagement,” Manzo said.
Another contributing factor to relatively high taxes is that Illinois is a “donor” state, meaning it contributes billions more in federal taxes than the state gets back in federal investments and expenditures.
“If our per capita federal obligations matched border states, Illinois would get at least $6 billion more every year to be spent and invested in the state,” Manzo said.
The reason Illinois contributes more to the federal government than some other states is because Illinois has higher incomes and a “more robust” middle class, he continued.
While Illinois ranks above average for high property and income tax rates, the state lands 31st in the nation for per capita sales tax revenue and is also below average for insurance taxes, Manzo said.
Photo credit: wellesenterprises/iStock
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© 2026 the Belleville News-Democrat (Belleville, Ill.). Visit www.bnd.com. Distributed by Tribune Content Agency LLC.
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