IL
Does Illinois tax tips and overtime?
The federal deduction and the Illinois deduction are separate questions. Here is where Illinois actually lands, and why.
How Illinois builds its tax base
Illinois starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in Illinois
Still taxedIL-1040 line 1 is "Adjusted gross income — Enter the adjusted gross income from your federal return," and IRC §224 is below-the-line, so it never reduces Illinois base income; the 2025 IL-1040 instructions and Schedule M contain no subtraction for qualified tips (and no addback line either, because federal AGI is unchanged — contrary to some trackers describing an Illinois 'add-back'). No Illinois legislation adopting §224 has been enacted.
Source: Illinois Department of Revenue, 2025 Form IL-1040 Instructions, Step 2 Line 1 (Adjusted gross income); 2025 IL-1040 Schedule M Instructions (subtraction lines 13-41 contain no tips or overtime item) · last reviewed
Overtime in Illinois
Still taxedIdentical mechanism: Illinois base income = federal AGI plus additions minus subtractions (35 ILCS 5/203(a)), and the §225 overtime deduction is taken after AGI, so it has no effect on Illinois income; Schedule M lists no subtraction for qualified overtime compensation and no corresponding addition is required. Illinois taxes the full overtime premium at 4.95%.
Source: Illinois Department of Revenue, 2025 IL-1040 Schedule M Instructions (no qualified tips/overtime subtraction or addition); 2025 IL-1040 Instructions, Line 1 · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.