Illinois's Flat Tax on Crypto
Illinois has taxed all individual income at a flat 4.95% since 2017, when the rate rose from 3.75% as part of a budget compromise. That flat rate applies to all forms of taxable income, including capital gains from selling or trading cryptocurrency. Illinois does not have a separate capital gains tax rate or a preferential rate for long-term holdings.
The Illinois constitution actually requires a flat income tax — any graduated rate structure would require a constitutional amendment. There have been attempts (including a 2020 ballot measure) to move to progressive rates, but voters rejected it. So the flat 4.95% is likely to remain in place for the foreseeable future.
State income tax: 4.95% flat. Applies to all crypto gains regardless of holding period. Federal rates apply on top. No separate state capital gains tax — gains are income. Chicago is a major derivatives and futures trading hub with significant crypto presence.
Federal + Illinois: What You Actually Pay
Your total Illinois crypto tax combines federal and state obligations:
- Short-term gains (held under 1 year): federal ordinary income rate (10–37%) + 4.95% Illinois = up to ~41.95% at the top bracket
- Long-term gains (held over 1 year): federal long-term rate (0%, 15%, or 20%) + 4.95% Illinois = 4.95% to ~24.95%
For a middle-income Illinois crypto holder, the typical total on long-term gains is approximately 19.95% (15% federal + 4.95% state). Holding crypto for over a year before selling still provides significant federal tax savings, even though Illinois doesn't reward holding period.
Illinois taxes all gains at 4.95% regardless of holding period. But the federal portion changes significantly: short-term gains can hit 37% federally while long-term gains max at 20%. On a $50,000 gain, the federal difference between short and long-term can be $8,500 or more. Illinois's flat rate doesn't change — the federal savings are still worth it.
What Counts as Taxable in Illinois
Illinois follows federal IRS definitions for crypto taxable events:
- Selling crypto for US dollars
- Trading crypto-to-crypto (selling BTC to buy ETH is a taxable event)
- Spending crypto on goods or services
- Receiving crypto as wages, freelance income, or business income
- Staking rewards, mining income, and airdrops (taxed as ordinary income at fair market value when received)
Transferring crypto between your own wallets is not taxable. Simply holding crypto — even if it appreciates significantly — creates no tax obligation until you dispose of it.
Chicago and Illinois in the Crypto Market
Chicago has long been the center of US derivatives trading through the CME Group and CBOE. Both exchanges launched Bitcoin futures products in 2017, making Chicago an early institutional crypto hub. CME Bitcoin futures remain a major benchmark for institutional Bitcoin pricing globally.
The Chicago trading culture — quantitative traders, options desks, high-frequency firms — has contributed to sophisticated crypto participation in Illinois. DRW Cumberland (a major crypto market maker), Jump Trading (a quantitative firm with significant crypto operations), and several crypto hedge funds operate out of Chicago.
Illinois's flat income tax rate of 4.95% is more competitive than its Midwest neighbor Wisconsin (graduated brackets up to 7.65%) or coastal states like California (13.3%) and New York (10.9%).
How Illinois Crypto Holders File
Illinois individual income tax is filed on Form IL-1040. The process starts federally: you report all crypto gains and losses on IRS Form 8949, which flows to Schedule D, which feeds into your federal Form 1040 as adjusted gross income (AGI).
Illinois generally conforms to federal definitions of income. Your federal AGI (which includes crypto gains) forms the basis for your Illinois return. You then apply the 4.95% flat rate to your Illinois net income.
Illinois also allows the same carryforward of capital losses as federal law — if you have more losses than gains in a year, you can carry forward the excess to offset future gains.
Chicago Has No City Income Tax
Unlike New York City (which adds up to 3.876% city income tax on top of state tax), Chicago does not impose a city income tax. Illinois residents — including Chicago residents — pay only the state flat rate. This is a meaningful advantage over high-tax cities where local taxes stack on top of state taxes.
FAQ
Does Illinois offer any deduction for crypto losses?
Illinois conforms to federal capital loss rules. You can offset crypto gains with crypto losses within the same tax year. If your total capital losses exceed gains, you can deduct up to $3,000 against ordinary income per year (same as federal), and carry the rest forward to future years. This can meaningfully reduce your Illinois tax if you had a losing year.
Is Illinois planning to raise its flat income tax?
Illinois voters rejected a constitutional amendment to allow graduated income tax rates in November 2020 (the "fair tax" amendment). Without a constitutional change, Illinois must maintain a flat rate. As of 2026, the rate remains 4.95%. There is no immediate legislative path to a rate increase.
Do I need to report crypto on my Illinois return if I already reported it federally?
Yes. Your Illinois return is separate from your federal return. You report income on both. Because Illinois starts from your federal AGI (which includes crypto gains), the gains automatically flow through to your Illinois calculation. You don't need to list each trade on your Illinois return — the net gains on your federal return carry over.
What if I moved from Illinois mid-year and sold crypto after leaving?
Illinois taxes you only on income earned while you were an Illinois resident. If you moved out of Illinois and then sold crypto, that gain is generally taxable in your new state, not Illinois. Part-year residents file Form IL-1040 and attach Schedule NR to allocate income to the Illinois residency period. Keep records of your move date and each transaction date.