Illinois FY 2026 budget: New taxes, expanded revenues and economic development initiatives

Austin DeMoss

Jul 25, 2025

5 min read

On June 16, 2025, Gov. J.B. Pritzker signed into law Illinois’ FY 2026 budget bill (H.B. 2755), enacting major changes to its sales and income laws and establishing two tax amnesty programs.

Passed by the Illinois General Assembly on May 30, just hours before the constitutional deadline, the bill’s $55.2 billion size set a state record. It introduces a suite of new taxes and revenue mechanisms aimed at addressing rising expenditures in education, pensions and healthcare while also supporting economic development initiatives.

The following highlights the bill’s more significant changes to Illinois taxes:

Tax amnesty programs

General amnesty program: Illinois is establishing an amnesty program for all taxpayers who owe any delinquent tax that is imposed and collected by the Illinois Department of Revenue. The program will run from October 1, 2025, to November 15, 2025. The department will also abate any interest or penalties relating to tax liabilities submitted under the program for taxable periods beginning after June 30, 2018, and before July 1, 2024.

Remote retailer amnesty program: For remote retailers, the state is establishing an amnesty program specifically for retailers’ occupation tax. This program will run from August 1, 2026, to October 31, 2026, and will cover the taxable periods from January 1, 2021, to June 30, 2026. To be eligible to participate, a remote retailer must be registered with the Illinois Department of Revenue and must have had economic nexus in Illinois during the taxable periods covered by the program.

Sales tax economic nexus transaction threshold removed

Starting January 1, 2026, Illinois is eliminating the 200-transaction nexus threshold for remote retailers. This change means that remote retailers will now be subject to Illinois retailers’ occupation tax obligations based solely on meeting or exceeding the $100,000 gross receipts threshold, rather than alternatively meeting a threshold based upon the number of annual transactions conducted with in-state purchasers.

Introduction of sports wagering tax

Effective July 1, 2025, the budget includes a new tax of 25 cents per wager on the first 20 million online sports bets per master sports licensee made each fiscal year, rising to 50 cents per bet afterwards.

Hotel operators’ occupation tax extended to hosting platforms

The budget removes existing exemptions for short-term rentals of owner-occupied, tenant-occupied or non-owner-occupied dwellings. Hosting platforms, such as Airbnb and Vrbo, will now be required to collect hotel tax on behalf of short-term rentals. Illinois taxes short-term rentals at a rate of 6%, applied to 94% of gross receipts.

Tobacco and nicotine product tax increases

Effective July 1, 2025, the tax rate on tobacco products increased from 36% to 45%. In addition, the legislation broadens the definition of “tobacco products” to include vaping products, nicotine analogs and nicotine pouches.

New telecommunications surcharge

Beginning July 1, 2025, the surcharge on telecommunications services increased from 7% to 8.65%. This additional 1.65% surcharge will be classified as the statewide 998 surcharge, used to enhance the 988 Suicide & Crisis Lifeline.

Environmental Protection Agency fees

The budget amends Section 42 of the Environmental Act to significantly increase civil penalties for environmental violations. These include breaches of general provisions of the act, violations of permits and regulations under programs such as the National Pollutant Discharge Elimination System (NPDES), the Underground Injection Control (UIC) program and the Resource Conservation and Recovery Act (RCRA), as well as failures to comply with board orders.

The updated law also addresses penalties for specific infractions, like improper waste handling and unauthorized discharges.

Personal income tax: Sourcing of gain from sales of pass-through entities

Historically, if an Illinois nonresident individual sold an ownership (equity) interest in a legal entity taxed by the IRS as an S corporation or partnership (a “pass-through entity”), Illinois would have assigned the resulting gain or loss to the individual’s state of residence (and thus not taxed the gain).

Under H.B. 2755 and effective for transactions occurring on or after June 16, 2025, gain or loss on the sale of an interest in a pass-through entity (other than an “investment partnership”) will be allocated to Illinois by multiplying it times the average of the pass-through entity’s Illinois apportionment percentage in the tax year of the sale and the two tax years prior to the sale. This approach is commonly referred to as “look-through sourcing.”

Corporate income tax: Increased taxation of GILTI

Historically, Illinois has not taxed the global intangible low-taxed income (GILTI) of controlled foreign corporations (CFCs) that are part of a corporation’s consolidated group. Effective for tax years ending on or after December 31, 2025 (e.g., calendar year 2025), Illinois will start taxing GILTI at a 50% rate.

Corporate income tax: Adoption of the Finnigan rule

Under prior law, the Illinois sales factor numerator of a unitary business group only included Illinois sales made by group members with nexus in Illinois (the Joyce rule).

Under H.B. 2755, and effective for tax years ending on or after December 31, 2025 (e.g., calendar year 2025), the numerator must also include sales made by group members that do not have nexus in Illinois (the Finnigan rule).

This change should generally reduce the Illinois “throwback” sales apportionment of C corporation groups that ship goods from Illinois, in cases where at least one group member has nexus in the ship-to state.

Corporate income tax: Tighter restrictions on addbacks for 80/20 companies

Under H.B. 2755, Illinois has eliminated two of the exceptions to the otherwise required disallowance of deductions for interest and intangible expenses paid, accrued or incurred to a foreign person with at least 80% of its total business activity outside the U.S. (an “80/20 company”).

Historically, Illinois has granted four exceptions to its addback requirement. Effective for tax years beginning on or after December 31, 2025 (e.g., calendar year 2025), Illinois has eliminated the following two exceptions:

Expenses paid to an 80/20 company that is taxable in another state or a foreign country (the “subject to tax” exception).
Interest expenses related to an arm’s length transaction but only if it has a main purpose other than avoiding federal or Illinois income tax (the “not for tax avoidance” exception).

How Wipfli can help

The Illinois FY 2026 budget increases the tax burden for many sectors and may have significant implications for companies operating within Illinois. Wipfli’s experienced state and local tax team is ready to support your business in navigating the potential implications of these changes.

Reach out today to learn more about how we can help you mitigate your SALT tax exposure and minimize tax.

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You can also get more tax insights from these additional resources: