Illinois has not conformed to OBBBA as of May 2026. Tips are taxed at the flat 4.95% state rate. The federal OBBBA exemption still reduces your federal tax — it just doesn't affect your Illinois return.

Updated May 2026 · 8 min read

Does Illinois Tax Tips in 2026?

Illinois charges a flat 4.95% state income tax on all tip income with no OBBBA conformity. The flat rate has one important implication: it's the same for everyone — a $30,000/year server and a $90,000/year fine dining server pay the same percentage. And unlike New York or Philadelphia, Chicago has no city income tax on top.

Illinois Tax Obligations on Tip Income

TaxRateApplies to Tips?Notes
Illinois state income tax4.95% flatAll tips — no exemptionNo brackets — same rate for all
Chicago city income tax0%No city taxIllinois does not permit city income taxes
Federal income tax10–22%Only above OBBBA thresholdOBBBA saves on federal only
FICA7.65%All tips — no exemptionCannot be waived

Illinois vs. Midwest Neighbors on Tip Tax Rates

StateState Tax RateState Tax on $30k TipsCity Tax Risk?
Indiana3.05% flat$915No
Michigan4.25% flat$1,275No statewide
Illinois4.95% flat$1,485No (Chicago has no city tax)
Iowa~5.7% effective~$1,710No
Wisconsin~5.3% effective~$1,590No
Missouri4.7% flat$1,410No

Effective rates at ~$50,000 total income for single filers. Flat rates used where applicable. Source: respective state department of revenue websites, 2026.

Illinois vs. High-Burden States: The Flat Rate Advantage for High Earners

Illinois's flat rate means high-earning tipped workers pay proportionally less than in progressive high-rate states:

StateRate on High-Income TipsState Tax on $75k in Tips
Illinois (flat)4.95%$3,713
New York State (progressive)~6.25% effective~$4,688
California (progressive)~9.3% effective~$6,975
Minnesota (progressive)~9.85% effective~$7,388

Effective state rates at $75k in tip income for a single filer with total income around $90,000. Actual rates depend on total income and deductions. Source: state tax schedules.

Illinois Minimum Wage Structure

LocationFull Min. WageTipped Min. WageTip Credit
Chicago$16.20/hrPer city ordinanceLimited
Illinois (statewide)$14.00/hr$9.60/hr$3.30/hr

Source: Illinois Department of Labor and Chicago Office of Labor Standards, 2026.

Calculate Your Illinois Take-Home

  1. Total gross = base wages + all tips
  2. Federal: apply OBBBA deduction (up to $25,000 qualified tips) then $16,100 standard deduction, then 2026 brackets
  3. Illinois: subtract $2,625 personal exemption from gross income, then apply 4.95% flat rate — no OBBBA deduction
  4. FICA: 7.65% on full gross income
  5. No city income tax anywhere in Illinois
Calculate Your Illinois Take-Home →

FAQs: Tips and Taxes in Illinois (2026)

Does Illinois tax tip income in 2026?
Yes. Illinois has not conformed to the federal OBBBA tip exemption. All income, including tips, is taxed at Illinois's flat 4.95% rate with no exemption or deduction for tip income.
Does Chicago have a city income tax?
No. Chicago does not impose a city income tax. Unlike New York City (3.078%–3.876%) or Philadelphia (3.79%), there is no city-level income tax in Chicago or anywhere in Illinois.
How does Illinois's flat tax benefit high-earning tipped workers?
Unlike progressive states (NY, CA) where higher earners pay higher marginal rates on tips, Illinois's flat 4.95% applies equally to all income. A server earning $90,000/year in tips pays the same 4.95% rate as one earning $30,000 — making Illinois relatively more favorable for high-earning tipped workers compared to high-rate progressive states.
What is Illinois's personal exemption for tipped workers?
Illinois provides a personal exemption of $2,625 per person (2026). A single filer reduces Illinois taxable income by $2,625, saving approximately $130 in Illinois income tax.
What is the tipped minimum wage in Illinois?
Illinois's tipped minimum wage is $9.60/hr (state minimum $14.00 minus the $3.30 tip credit). Chicago's minimum wage is $16.20/hr with a separate city tipped wage ordinance. Employers must make up the difference if tips don't bring workers to the applicable minimum.
Is Illinois expected to conform to the OBBBA tip exemption?
As of May 2026, Illinois has not introduced conformity legislation. Illinois faces significant budget pressures and has been slow to conform to major federal tax changes. Monitor the Illinois Department of Revenue for updates before filing your 2026 state return.
How does living in Indiana and working in Illinois affect tip taxes?
Indiana residents who earn income in Illinois pay Indiana income tax (3.05% flat) on their worldwide income, with a credit for taxes paid to Illinois. The net result is typically that Indiana's lower 3.05% rate applies rather than Illinois's 4.95%, saving approximately 1.9% on Illinois-earned tip income. Whether this savings outweighs commuting costs depends on individual circumstances.

Compare: New York (progressive + city tax) · Texas ($0 state tax) · All 50 states →