What Illinois residents actually pay
Illinois taxes ordinary income at a top marginal rate of 4.95%. RSU settlement value, NSO exercise spread, and ESPP discount income all count as ordinary wages for this purpose and flow through the state's normal brackets.
Flat 4.95%; Chicago still has meaningful Ads-tech and fintech.
Long-term vs short-term treatment
Federal long-term rates cap at 20% (plus 3.8% NIIT for high earners) on gains held 12+ months past the basis-setting event. For RSUs, the basis-setting event is the vest date. For ISOs held through a qualifying disposition, the rules are stricter: two years from grant and one year from exercise.
Frequently asked
- Does Illinois tax RSU income the same as wages?
- Yes. Illinois treats RSU ordinary income as wages, taxable at the state's top marginal rate of 4.95%. Supplemental-wage federal withholding (22%, or 37% above $1M YTD) does not adjust for state withholding, so you often owe extra at filing.
- What happens if I exercise ISOs while living in Illinois?
- Illinois does not run a separate state AMT, so only federal AMT applies. You still need to model the bargain element carefully if you plan a cashless exercise-and-sell.
- I moved to Illinois from another state. Who taxes my vesting RSUs?
- Most high-tax states (CA, NY, MA) source RSU ordinary income to workdays between grant and vest. If your grant pre-dates your Illinois move, expect the old state to tax the portion of each tranche attributable to workdays earned there. Illinois taxes the remainder.
- Can I reduce Illinois taxes by timing my RSU sales?
- Illinois taxes long-term capital gains at the same rate as ordinary income, so timing alone does not produce a state savings — only federal. Holding for 12 months still halves the federal rate on gains above basis.
Related
- RSU taxes — Illinois
- ISO exercises and AMT — Illinois
- QSBS — Illinois
- Moving to or from Illinois with unvested equity: trailing nexus rules — Illinois
- RSU vesting schedules — Illinois
- ESPP taxation — Illinois
- NSO exercises and state tax — Illinois
- 401(k) and retirement accounts — Illinois
- Leaving Illinois: how to cleanly break residency before a liquidity event — Illinois
- Illinois equity-comp overview