Illinois for NRI families: flat 4.95% tax, no credit for Indian tax and the $4 million estate tax

Illinois, especially the Chicago area, has a large Indian-origin population. Its income tax is simple on the surface, but a few rules matter a great deal to NRI families. The figures below are for tax year 2025 unless stated. Where we could not read an official page, we say so.

Who is an Illinois resident

Illinois uses domicile. The state describes your domicile as the place where you live and where you intend to return after temporary absences. A full-year resident is someone domiciled in Illinois for the whole tax year. A part-year resident was domiciled here for part of the year. A non-resident was not domiciled in Illinois at any time in the year.

We did not find a separate day-count test on the pages we read, but the state says temporary absences do not change status. On long assignments abroad, a person who intends to return to Illinois stays a resident. A person who does not intend to return keeps the Illinois domicile until a new one is set up elsewhere, which depends on the facts. A move on a work visa, with the family and home staying in Illinois, usually points to Illinois domicile.

Who is taxed on what

• Residents start from federal adjusted gross income, so wages, interest, dividends and gains are all included, and that includes income from India that appears on the federal return.
• Part-year residents are taxed on all income received while resident, plus Illinois-source income received while non-resident.
• Non-residents are taxed only on Illinois-source income. The state says non-residents do not include gains from selling intangibles such as shares, unless the shares are partnership or S corporation interests sourced to Illinois.

The rate

Illinois has a flat rate of 4.95% of net income, with no lower rate for long-term gains. The rate has been 4.95% since 1 July 2017 on the Department of Revenue rate page we read, which showed no change for 2026.

There is no standard deduction. Instead you get an exemption allowance, $2,850 per person for 2025, with an extra $1,000 if you or a spouse is 65 or older or legally blind. The allowance is lost if federal adjusted gross income exceeds $250,000, or $500,000 for joint filers. High earners therefore usually get no exemption.

No credit for Indian tax

Illinois gives a credit on Schedule CR for income tax paid to another US state, the District of Columbia or a US territory. The instructions say no credit is allowed for taxes paid to the federal government or to foreign countries. Indian tax that helps on your federal Form 1116 does nothing for the Illinois return. See the foreign tax credit guide.

Stock pay, part-year years and moves

If you move into or out of Illinois in a year when shares vest, income paid while you were a resident is taxed in full. Income paid while you were a non-resident is taxed only if it is Illinois-source. The Schedule NR instructions we read say that stock option or deferred pay earned in an earlier year needs a calculation from the employer showing the Illinois portion. They do not mention RSUs by name, so ask your employer how it will source an RSU vest and keep a log of the days you worked in each state. See the equity guide and the state moves guide.

Property tax

Illinois property taxes are set locally and are among the higher ones in the country. The state does not publish one rate. Residents can claim a nonrefundable credit equal to 5% of Illinois property tax paid on their main home, on Schedule ICR, but the credit is not allowed if federal AGI is above $250,000, or $500,000 for joint filers. Non-residents cannot take it. If you plan to sell, see selling a home before you move.

Estate tax

Illinois has its own estate tax run by the Attorney General. The exclusion amount has been $4 million in the Attorney General notices we found, which is far below the federal threshold. Illinois does not let a surviving spouse add the first spouse's unused amount. Whether the tax reaches an Illinois resident's property in India is not clear to us, so treat it as a question for your advisers. We could not read the current Attorney General page, so confirm the figures.

Payroll deductions

We did not find a state-run paid family leave or disability insurance scheme in Illinois that takes a premium from your pay. The Paid Leave for All Workers Act gives workers paid leave through their employer, from 1 January 2024, with no pay slip deduction as far as we can tell. Check your pay slip.

Forms and dates

Residents file Form IL-1040. Part-year residents and non-residents file Form IL-1040 with Schedule NR. Schedule CR is for the credit for other states. The 2025 return and payment were due on 15 April 2026. The automatic extension to 15 October 2026 extends only the time to file, so pay by April using Form IL-505-I.

Illinois decides residency from where your home is and where you intend to be, not from your visa. If you sell shares or move out in a big year, get the Illinois return checked by a US CPA before you file.