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Illinois · rsu tax

RSU taxes in Illinois: withholding, supplemental wages, and state nexus

How Illinois's 4.95% top marginal rate interacts with supplemental-wage withholding on RSU vesting, and what to do when your RSUs vest after a move.

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.

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Withholding gap

Federal supplemental-wage withholding on RSU vesting is flat — 22%, rising to 37% once year-to-date supplemental wages exceed $1M. If your actual marginal rate is higher, the shortfall shows up at filing. In Illinois, layer on 4.95% at the top and model what you'll owe before year-end.

Sourcing when you move

If you earned part of a vesting tranche while in a different state, most high-tax states (California, New York, Massachusetts) use workday allocation between grant and vest. Your payroll will likely withhold only for your current state, so a manual true-up at filing is the rule, not the exception.

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.

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