State Deep Dive
C Corp vs S Corp in Illinois
Illinois imposes the Personal Property Replacement Tax (PPRT) at the entity level on S corps (1.5 percent), partnerships and trusts (2.5 percent), and C corps (2.5 percent, on top of 7 percent IL corporate income tax). The PPRT replaces a repealed personal property tax and applies regardless of federal entity election.
Updated June 2026. Not tax advice.
How to elect S-corp status in Illinois
There is no separate Illinois S-corporation application. Illinois automatically recognizes the federal S election under the Illinois Income Tax Act, so the election happens entirely at the federal level with the IRS. The steps:
- Form (or have) an eligible entity in Illinois. Register a corporation or LLC with the Illinois Secretary of State. It must meet the federal S-corp limits: a domestic entity, no more than 100 shareholders, only eligible (U.S. individual, estate, or certain trust) shareholders, and a single class of stock.
- File IRS Form 2553 federally. All shareholders sign. File by the 15th day of the third month of the tax year the election is to take effect (March 15 for a calendar-year business). Missed it? Rev. Proc. 2013-30 grants automatic late-election relief, generally within 3 years and 75 days. See the Form 2553 election guide.
- No Illinois state election to file. Once the IRS accepts the federal election, the company is an S corp for Illinois purposes automatically, unlike New York or New Jersey, which require a separate state S election.
- File Illinois returns going forward. The S corp files Form IL-1120-ST and pays the 1.5% Personal Property Replacement Tax; shareholders pay 4.95% IL personal income tax on their K-1 share.
Source: Illinois DOR Business Income Tax; IRS Instructions for Form 2553; Rev. Proc. 2013-30.
Illinois entity tax rates (2026)
S corp PPRT
1.5%
On net income
C corp IL income tax
7%
Plus 2.5% PPRT
IL personal income tax
4.95%
Flat rate on K-1
The Personal Property Replacement Tax
Illinois abolished personal property tax in 1979 (Illinois Constitution Article IX, Section 5). To replace lost local revenue, the state imposed the Personal Property Replacement Tax under 35 ILCS 5/201(c) and (d).
PPRT applies at 1.5 percent on S corp net income, 2.5 percent on partnership and trust net income, and 2.5 percent on C corporations (in addition to the 7 percent IL corporate income tax). For an Illinois S corp with $300,000 net income, PPRT is $4,500. Shareholders also pay 4.95 percent IL personal income tax on their share of the K-1.
Source: Illinois Department of Revenue Business Income Tax; 35 ILCS 5/201.
Form IL-1120-ST mechanics
Illinois S corps file Form IL-1120-ST (Small Business Corporation Replacement Tax Return) by the 15th day of the third month after year-end. The form computes Illinois base income, apportions to Illinois based on sales factor (single sales factor), and applies the 1.5 percent PPRT.
S corps also issue Schedule K-1-P to shareholders showing their distributive share. Shareholders report the K-1 income on their individual returns and pay 4.95 percent IL personal income tax. Illinois automatically recognizes the federal S election; no separate state election is required (unlike NY or NJ).
Source: Illinois DOR Business Forms
Worked example: $300k Illinois S corp
| Line | S Corp | C Corp |
|---|---|---|
| Net income | $300,000 | $300,000 |
| Federal corporate tax | $0 | $63,000 (21%) |
| IL corporate income tax (C only) | $0 | $21,000 (7%) |
| IL PPRT | $4,500 (1.5%) | $7,500 (2.5%) |
| IL personal tax on $300k K-1 | $14,850 (4.95%) | $0 (until dividend) |
| Total IL tax | $19,350 | $28,500 |
Indicative. Plus federal taxes on both. S corp also produces SE-tax saving on distributions above reasonable salary.
Illinois PTET
Illinois adopted Pass-Through Entity Tax (PTET) effective for tax years ending on or after December 31, 2021. S corps and partnerships may elect to pay an entity-level 4.95 percent tax on the partner or shareholder share of net income, with a corresponding refundable credit on the individual return.
For SALT-cap-affected shareholders, the PTET election effectively deducts the IL state tax at the entity level federally. The election is made annually on Schedule B with Form IL-1120-ST or IL-1065.
Sources
- Illinois DOR Business Income Tax
- Illinois DOR PTET
- 35 ILCS 5/201 (Illinois Income Tax Act)
- Illinois Secretary of State Business Services
Educational only. Consult an Illinois CPA for your situation.