Legal References

Definition

The Illinois Income Tax is imposed on every corporation earning or receiving income in Illinois. The tax is calculated by multiplying net income by a flat rate. The Illinois Income Tax is based, to a large extent, on the federal income tax code.

Tax rate

S corporations are subject to the Personal Property Tax Replacement Income Tax (replacement tax), but do not pay Illinois income tax. The income tax is paid at the shareholder's level. Generally, income from an S corporation is passed on to the shareholders. The shareholders must include this income in their federal adjusted gross income (for individuals) or taxable income (for other taxpayers). This is the starting point for Illinois income tax purposes and where income tax is paid.

Use the Tax Rate Database to determine the replacement tax rate for S corporations.

Tax base

The starting point for the Illinois Small Business Corporation Replacement Tax Return is federal taxable income, which is income minus deductions. Next, the federal taxable income is changed by adding back certain items (e.g., state, municipal, and other interest income excluded from federal taxable income) and subtracting others (e.g., interest income from U.S. Treasury obligations). The result is “base income.”

Filing requirements

You must file Form IL-1120-ST, Small Business Corporation Replacement Tax Return, if you are a small business corporation, as defined in Internal Revenue Code (IRC), Section 1361(a), that

  • has net income or loss as defined under the Illinois Income Tax Act (IITA); or
  • is qualified to do business in the state of Illinois and is required to file U.S. Form 1120S (regardless of net income or loss).

If you own a qualified subchapter S subsidiary (QSSS) defined in IRC, Section 1361(b)(3), as well as any other entity that is disregarded as an entity separate from you for purposes of the IRC, it is likewise disregarded as a separate entity for purposes of the IITA. You must include all items of income, deduction, loss, credit, etc. from such entities on your return as if they were earned or incurred by you directly.

Due dates 

  • Original return

S corporations may file as members of a unitary group but may not file a combined return. You may be required to file a separate unitary return, and file a schedule UB to apportion your business income. You should see Illinois Schedule UB, Combined Apportionment for Unitary Business GroupIllinois Schedule UB Instructions, and                                            Form IL-1120-ST Instructions for information about filing requirements. 

In general
  • ​ Form IL-1120-ST is due on or before the 15th day of the 3rd month following the close of the tax year.
  • Automatic filing extension 

You are not required to file a form in order to obtain this automatic extension. However, if you expect tax to be due, you must use Form IL-1120-ST-V, Payment Voucher for Small Business Corporation Replacement Tax, to pay any tentative tax due in order to avoid interest and penalty on tax not paid by the original due date of the return. An extension of time to file your Form IL-1120-ST does not extend the amount of time to pay your Illinois tax liability.

​In general
  •  we grant you an automatic seven-month extension of time to file your​ tax return. 
  • Amended return

State Change​
  • ​If your change creates or increases the Illinois net loss for the year, you must file Form IL-1120-ST-X showing the increase in order to carry the increased loss amount to another year.
  • If your change increases the tax due to Illinois, you should file Form IL-1120-ST-X and pay the tax, penalty, and interest promptly.
  • If your change decreases the tax due to Illinois and you are entitled to a refund or credit carryforward, you must file Form IL-1120-ST-X within
    • three years after the due date of the return (including extensions),
    • three years after the date your original return was filed, or
    • one year after the date your Illinois tax was paid, whichever is latest.
Federal Change
  • ​If your federal change decreases the tax due to Illinois and you are entitled to a refund or credit carryforward, you must file Form IL-1120-ST-X within two years plus 120 days of federal finalization.
  • If your federal change increases the tax due to Illinois, you must file Form IL-1120-ST-X and pay any additional tax within 120 days of IRS partial agreement or finalization. In order to avoid late payment penalties, you must attach proof of the federal finalization date, showing the change was reported to Illinois within 120 days of IRS acceptance, or you may be assessed a late-payment penalty. 

Note: You should not file Form IL-1120-ST-X until you receive a federal finalization notification from the IRS stating that they have accepted your change, either by paying a refund, or by final assessment, agreement, or judgment. Acknowledgment that the IRS received your amended return is not acceptable proof of federal finalization.

Pass-through withholding payments

For tax years ending on or after December 31, 2008, S corporations, partnerships, and trusts are required to make Illinois Income Tax payments on behalf of nonresident shareholders, partners, and beneficiaries. Although this is referred to as “pass-through entity withholding,” deductions are not actually taken from payments the pass-through entities make to their owners. Instead, the pass-through entities are required to make an income tax payment, a “pass-through withholding payment,” on behalf of the nonresident owner for each taxable year.

Nonresident partners, shareholders, and beneficiaries must be notified by the partnership, S corporation, or trust of the amount of pass-through withholding payments made on their behalf. If the pass-through withholding payments are sufficient to satisfy the partner’s, shareholder’s, or beneficiary’s Illinois Income Tax liability, no return is required. Any taxpayer that files an Illinois tax return for any reason must include any income passed through from the entity and will be allowed a credit for the pass-through withholding payment made on their behalf.

See the Form IL-1120-ST Instructions for more information.

What if I need to correct or change my return?

If you need to correct or change your return after it has been filed, you must file Form IL-1120-ST-X, Amended Small Business Corporation Replacement Tax Return. Returns filed before the extended due date of the return are treated as your original return for all purposes. You should file Form IL-1120-ST-X only after you have filed a processable Illinois Income Tax return. You must file a separate Form IL-1120-ST-X for each tax year you wish to change. For more information see Form IL-1120-ST-X Instructions

Do not file another Form IL-1120-ST with “amended” figures to change your originally filed Form IL-1120-ST.