Doing business in Chicago: city taxes on top of state filings
Quick answers
- What business taxes apply in Chicago?
- Chicago has no city income tax and no employee head tax (repealed in 2014; a 2026 revival was rejected). The heavy layer is Illinois: 9.5% combined corporate rate, a 1.5% replacement tax on pass-throughs, plus two-year Chicago business licenses.
The stack
- Corporations pay 7% Illinois income tax plus 2.5% personal property replacement tax.
- LLCs, partnerships, and S-corps pay the 1.5% replacement tax at the entity level.
- Most Chicago businesses need a city license: $500 (limited) or $1,000 (regulated) for two years under 2026 fees.
Illinois taxes that reach pass-throughs
Illinois taxes C-corporations at 7% of Illinois net income plus a 2.5% personal property replacement tax, for 9.5% combined. Unusually, it also taxes pass-through entities (partnerships, LLCs taxed as partnerships, and S-corporations) at 1.5% of their Illinois net income through the replacement tax, on top of the owners’ 4.95% personal income tax. Every Illinois LLC also files a $75 annual report with the Secretary of State before its anniversary month.
Chicago licenses
Most businesses operating inside city limits need a Chicago business license from the Department of Business Affairs and Consumer Protection, generally valid for two years. The city raised several fees for 2026: a limited business license now costs $500 and regulated licenses $1,000 for the two-year term. Chicago also levies taxes on specific activities: leases of computer software and cloud services, parking, and amusements among them: that can reach SaaS and event businesses.
No head tax
Chicago’s employer expense tax, a per-employee monthly charge, was phased out by 2014. A proposal to bring back a head tax on large employers was rejected when the City Council passed the 2026 budget.
Worked example
A Chicago LLC agency with $300,000 of Illinois net income pays $4,500 of replacement tax at the entity level, its members pay 4.95% Illinois income tax on their shares, and it renews a $500 limited license every two years. A C-corp with the same income pays $28,500 of Illinois corporate tax.
The state layer underneath
City taxes sit on top of state obligations, never instead of them. For the IL side, see remote workers and nexus, and check whether a hire or customer in Chicago creates a filing duty in the nexus checker.
Other cities
Sources
- Chicago municipal tax authority schedules and ordinances (reviewed September 2026)
- IL Department of Revenue / Secretary of State guidance