The Illinois Income Tax is imposed on every partnership 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.
Partnerships are subject to the Personal Property Tax Replacement Income Tax (replacement tax), but do not pay the regular Illinois income tax. Generally, income from a partnership is passed on to the partners. The partners must include this income in their federal adjusted gross income (for individuals) or federal taxable income (for other taxpayers). This is the starting point for Illinois income tax purposes and where the regular income tax is paid.
Use the Tax Rate Database to determine the replacement tax rate.
The starting point for the Illinois Partnership 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.
You must file Form IL-1065, Partnership Replacement Tax Return, if you are a partnership, as defined in "Definitions to help you complete your Form IL-1065," in the Form IL-1065 Instructions and you have base income or loss as defined under the Illinois Income Tax Act (IITA).
If you are a partnership organized for the sole purpose of playing the Illinois State Lottery you are not required to file a Form IL-1065.
Your Illinois filing period is the same as your federal filing period. In general, Form IL-1065 is due on or before the 15th day of the 4th month following the close of the tax year.
A partnership may act as an authorized agent to file returns and pay taxes for its partners. These agents must file Form IL-1023-C, Composite Income and Replacement Tax Return, annually by the 15th day of the 4th month following the close of the tax year.
Partnerships may not join in the filing of a combined return. However, you may be required to file a separate unitary return, and file a schedule UB to apportion your business income. See the Form IL-1065 Instructions for more information.
For tax years ending on or after December 31, 2004, if you qualify as investment partnership, you are not required to file Form IL-1065, even if you are required to file a federal tax return (U.S. Form 1065). See Illinois Income Tax Act (IITA) Section 1501(a)(11.5) for more information. You may not amend returns that you already filed for tax years ending before December 31, 2004.
We grant you an automatic six-month extension of time to file your partnership tax return. You are not required to file Form IL-505-B, Automatic Extension Payment, in order to obtain this automatic extension. However, if you expect tax to be due, you must use Form IL-505-B 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-1065 does not extend the amount of time you have to pay your Illinois tax liability.
A new law became effective for tax years ending on or after December 31, 2008. This law requires S corporations, partnerships, and trusts 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 one income tax payment, a “pass-through entity 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 entity payments made on their behalf. If the pass-through entity 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 entity payment made on their behalf.
If you need to correct or change your return after it has been filed, you must file Form IL-1065-X, Amended Partnership Replacement Tax Return. Returns filed before the extended due date of the return are treated as your original return for all purposes.
For more information see Form IL-1065-X Instructions. You should file Form IL-1065-X only after you have filed a processable Illinois Income Tax return. You must file a separate Form IL-1065-X for each tax year you wish to change.
Do not file another Form IL-1065 with “amended” figures to change your originally filed Form IL-1065.
Note: Use Form IL-843, Amended Return or Notice of Change in Income, for tax years prior to 12/31/2007.