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About IDOR

Businesses

Subchapter S

Statutory Reference

35 ILCS 5/101 to 5/1701

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 regular Illinois income tax. The regular 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 regular 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

Your Illinois filing period is the same as your federal filing period. 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.

An S corporation may act as an authorized agent to file returns and pay taxes for its shareholders. 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.

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.

If you are an S corporation that is a member of a unitary business group, you should see Illinois Schedule UB, Combined Apportionment for Unitary Business Group, and the instructions for information about filing requirements. S Corporations may file as members of a unitary group but may not file a combined return.

Automatic seven-month filing extension

We grant you an automatic seven-month extension of time to file your small business corporate 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-1120-ST does not extend the amount of time you have to pay your Illinois tax liability.

Pass-through entity payments

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.

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.

For more information see Form IL-1120-ST-X Instructions. 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.

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

Note: Use Form IL-843, Amended Return or Notice of Change in Income, for tax years prior to 12/31/2007.