Starting a Business in Illinois: Licenses, Permits & Requirements (2026)

Last updated: April 24, 2026

Four things make starting a business in Illinois different from most other states. First, Illinois has a flat 4.95% individual income tax and a separate Personal Property Replacement Tax – 1.5% on LLC, partnership, and S-corp net income and 2.5% on corporate net income – that most other states don’t have at all. Second, Illinois requires workers’ compensation from your very first employee, with no threshold and Class A misdemeanor penalties for non-compliance. Third, the Paid Leave for All Workers Act gives every Illinois employee 40 hours of paid leave per year statewide – but it does not apply in Chicago or Cook County, which run their own stronger paid leave ordinances that override it. Fourth, Illinois Secure Choice is a mandatory state-run retirement program for any Illinois employer with 5+ employees and 2+ years in business who does not already offer a qualified plan.

This guide compiles the specific Illinois agency requirements, portal links, fee amounts, and Chicago/Cook County overrides that apply to starting a business in Illinois in 2026. Source agencies referenced throughout are the Illinois Secretary of State, Illinois Department of Revenue (IDOR), Illinois Department of Employment Security (IDES), Illinois Department of Labor (IDOL), Illinois Workers’ Compensation Commission (IWCC), Illinois Department of Financial and Professional Regulation (IDFPR), and the Chicago Department of Business Affairs and Consumer Protection (BACP).

Illinois Business Requirements at a Glance

Requirement	Agency / Portal	Cost	Timeline
LLC Articles of Organization (Form LLC-5.5)	Illinois Secretary of State	$150 (online or mail)	5-10 business days online; 24-hour expedited +$100
Annual Report (LLC)	Illinois Secretary of State	$75/year	Due by 1st day of LLC’s anniversary month; $100 penalty for late filing
Assumed Business Name / DBA (LLC or corp)	Illinois Secretary of State	Varies by calendar year ($30-$150 tier)	Before operating under the name
Federal EIN	IRS.gov	Free	Immediate online
Retailers’ Occupation Tax (sales tax) Account	MyTax Illinois (IDOR)	Free to register; annual tax return	Before collecting sales tax
Unemployment Insurance Account	MyTax Illinois / IDES	New employer rate 3.35% (3.45% NAICS 56); taxable wage base $14,250 (2026)	Register within 30 days of first payroll
Withholding Tax Account	MyTax Illinois (IDOR)	Free	Before first payroll
Workers’ Compensation Insurance	Private insurer	Varies by payroll and industry; NCCI rates apply	Before first employee’s first day
Illinois Secure Choice Retirement	Illinois Secure Choice	No employer fees, no employer contributions	Mandatory at 5+ employees with 2+ years in business if no qualified plan
New Hire Reporting	IDES New Hire Directory	Free	Within 20 days of hire
Local Business License (if required)	City/village clerk	Varies by municipality	Before operating within city limits
Chicago Business License (if operating in Chicago)	Chicago BACP Small Business Center	Limited $500 / Regulated $1,000 (2-year terms, 2026 rates)	Before operating in Chicago
IDFPR Professional License (industry-specific)	IDFPR	Varies by license type	Before practicing in licensed profession

How to Start a Business in Illinois (Step by Step)

Step 1: Form Your Illinois LLC

File Articles of Organization (Form LLC-5.5) with the Illinois Secretary of State, Department of Business Services. Cost: $150. Online filings through the ilsos.gov filing portal process in 5-10 business days; mail filings take 10-15 business days plus mail time. If you need faster turnaround, pay an additional $100 for 24-hour expedited processing.

Your LLC name must contain “LLC,” “L.L.C.,” or “Limited Liability Company” and must be distinguishable from existing entity names on file. Run a name search using the Illinois Business Entity Search before filing. Optional 90-day name reservation: $25.

Registered agent: Every Illinois LLC must have a registered agent with a physical Illinois street address – P.O. boxes are not accepted. You can serve as your own registered agent if you have an Illinois address, or hire a commercial registered agent.

Annual Report: Illinois LLCs must file an annual report with the Secretary of State every year. The report is due by the first day of your LLC’s anniversary month – the same month you originally filed. The filing fee is $75. You can file up to 60 days early. Missing the deadline triggers a $100 penalty and, eventually, administrative dissolution. File through ilsos.gov.

Assumed Business Name / DBA: If you operate under a name different from your LLC’s legal name, Illinois LLCs and corporations file an Assumed Name adoption with the Secretary of State. Sole proprietors and general partnerships file DBAs at the county clerk level instead. Fees vary.

After formation, apply for your federal EIN for free at IRS.gov – you need it before you can register for state tax accounts, open a business bank account, or hire employees.

Step 2: Register for Illinois Taxes Through MyTax Illinois

Illinois consolidates most state tax registrations through MyTax Illinois (mytax.illinois.gov) – the Illinois Department of Revenue (IDOR) portal. Register there for sales tax, withholding, and unemployment insurance in a single session.

Illinois Sales Tax (Retailers’ Occupation Tax)

Illinois’s state sales tax rate is 6.25% on general merchandise. Local jurisdictions layer on municipal, county, and Regional Transportation Authority (RTA) taxes that push the combined rate higher. Chicago’s combined rate is 10.25%; combined rates across the state range from 6.25% to roughly 11.50% depending on location.

• Services are generally NOT taxed in Illinois – a meaningful difference from states like Texas or Connecticut. Cleaning services, landscape maintenance, and most professional services are exempt from state sales tax. But specific service categories (parking, telecommunications, hotel accommodations, some repair labor) are taxable. Always verify your specific service before assuming exempt status.
• Grocery sales tax was permanently eliminated on January 1, 2026, but municipalities may adopt their own local 1% grocery tax. If you sell groceries, check your local ordinance.
• Registration is free at MyTax Illinois. Filing frequency is assigned based on expected liability (monthly, quarterly, or annual).

Illinois Income Tax and Personal Property Replacement Tax

Illinois uses a flat individual income tax rate of 4.95% and a flat corporate income tax rate of 7.0%. LLCs, partnerships, and S-corps are pass-through entities – their income flows to owners’ personal returns at 4.95%. No brackets.

Illinois also imposes a Personal Property Replacement Tax (PPRT) that most states don’t have. PPRT is a separate tax on business income paid to the state and distributed to local governments. Rates:

• Corporations: 2.5% of net income, for a combined effective corporate rate of 9.5%
• LLCs, partnerships, S-corporations, trusts: 1.5% of net income
• Sole proprietorships: Not subject to PPRT

PPRT is why forming a single-owner LLC in Illinois still costs real money – the owner pays 4.95% personal income tax on pass-through earnings, and the LLC itself pays 1.5% PPRT. A sole proprietorship avoids the PPRT layer, so for very small businesses with minimal liability exposure, the sole-prop vs. LLC math sometimes comes out different in Illinois than in states without a PPRT.

File through IDOR. Estimated quarterly payments are required if you expect to owe $500 or more in Illinois tax.

Step 3: Register for Unemployment Insurance and Withholding Before First Payroll

If you hire employees in Illinois, you must register with the Illinois Department of Employment Security (IDES) for unemployment insurance. Register through MyTax Illinois within 30 days of your first payroll.

• 2026 new employer rate: 3.35% (standard), or 3.45% for employers in NAICS sector 56 (administrative support and waste management – this includes cleaning services and many landscape maintenance operations). Both rates include the 0.55% fund-building surtax.
• 2026 taxable wage base: First $14,250 per employee per year
• Experienced employer rate range (2026): 0.75% to 7.05% (including the 0.55% fund-building surtax)
• Filing: Quarterly UI-3/40 through MyTax Illinois

New Hire Reporting: Report every new employee to the Illinois New Hire Directory within 20 days of hire. Required under Illinois Income Tax Act and federal law.

Withholding: Withhold Illinois income tax from employee paychecks at the 4.95% flat rate. Register for a withholding account on MyTax Illinois and remit per the assigned schedule (semi-weekly, monthly, or annual based on prior liability).

Step 4: Get Workers’ Compensation Insurance

Illinois requires workers’ compensation insurance from any employer with one or more employees. No threshold. Part-time employees count. Family members count. The only workers exempt are true independent contractors and, optionally, sole proprietors, business partners, corporate officers, and LLC members who file to exempt themselves.

Situation	Illinois Requirement
1+ part-time or full-time employees	Workers’ comp required
Family members on payroll	Workers’ comp required
Sole proprietor or LLC member with no employees	Optional (may elect coverage)
Construction / extra-hazardous occupations	Exemption generally not available for owners
True independent contractors	Not required (but misclassification is audited)

Penalties for operating uninsured (administered by the Illinois Workers’ Compensation Commission):

• Fines of up to $500 per day of non-compliance, with a minimum of $10,000
• Class A misdemeanor for negligent failure to carry coverage
• Class 4 felony for knowing failure to carry coverage
• Personal liability for corporate officers if the business fails to pay the penalty
• Work-stop order: IWCC can halt all business operations until you produce proof of insurance
• Loss of exclusive remedy: Uninsured employers can be sued in civil court with unlimited damages – the workers’ comp shield is gone

Illinois has no state fund equivalent to Colorado’s Pinnacol or Texas’s TXCOMP – you buy coverage from a private insurer or a licensed self-insurance program. The National Council on Compensation Insurance (NCCI) sets advisory loss costs used by most Illinois carriers.

Step 5: Comply With Illinois Paid Leave – and Chicago/Cook County If Applicable

This is one of the most Illinois-specific pieces of running a business here, and the rules change depending on where your employees physically work.

Statewide: Illinois Paid Leave for All Workers Act (PLAWA)

Effective January 1, 2024, the Paid Leave for All Workers Act requires Illinois employers of all sizes to provide 40 hours of paid leave per 12-month period. Employees accrue 1 hour of paid leave for every 40 hours worked. There is no minimum employee threshold – PLAWA applies to employers of 1.

• Workers can use the leave for any reason – PLAWA is not limited to illness; employers cannot require workers to state the reason
• Employers may set a minimum increment of use up to 2 hours
• Unused leave carries over annually but employers are not required to allow use beyond 40 hours unless they choose to
• Unused leave does NOT need to be paid out at termination (unlike Chicago’s separate ordinance)
• Recordkeeping required for at least 3 years

If you already offer a paid leave policy that meets the 40-hour minimum and allows use for any reason, you do not need to create a separate PLAWA policy.

Chicago and Cook County: PLAWA Does Not Apply

This is a trap for employers used to following state law. PLAWA explicitly does not apply in Chicago or Cook County because both jurisdictions had their own paid leave ordinances in place before January 1, 2024. Chicago and Cook County employers follow the local ordinance – which is stronger than PLAWA.

Chicago Paid Leave and Paid Sick Leave Ordinance (effective July 1, 2024): Chicago employers must provide both 40 hours of paid leave AND 40 hours of paid sick leave per year – 80 hours total. Employees earn 1 hour of each type for every 35 hours worked. Small employers (50 or fewer covered employees) are exempt from the payout-at-termination requirement for paid leave but still must provide the accrual. Medium employers (51-100) pay out up to 16 hours in year one, full balance after July 1, 2025. Large employers (100+) pay out the full balance. Any employee who works 80 hours in Chicago within any 120-day period is covered. Administered by the Chicago BACP Office of Labor Standards.

Cook County Paid Leave Ordinance (amended 2024 to align with PLAWA minimum): Applies to Cook County employers outside Chicago city limits. 40 hours paid leave per year. See the Cook County Commission on Human Rights for specifics.

If you have employees in Chicago, Cook County outside Chicago, and downstate Illinois, you may be managing three different paid leave rule sets simultaneously. Map every employee’s primary work location before building your payroll policies.

Step 6: Register for Illinois Secure Choice If You Reach 5 Employees

Illinois Secure Choice is a state-administered Roth IRA program that employers of a certain size are required to facilitate if they do not already offer a qualified retirement plan (401(k), SEP IRA, SIMPLE IRA, pension, etc.).

• Mandatory if: You have 5+ Illinois employees in every quarter of the previous calendar year, AND you have been in business at least 2 years, AND you do not offer a qualified retirement plan
• Employer responsibilities: Facilitate the program only – maintain employee roster, submit contributions via payroll deduction
• Employer costs: No fees; no required employer match; no fiduciary liability for plan investments
• Employee default: 5% contribution rate, auto-escalates 1% per year to a 10% cap, invested in a target-date fund unless employee changes allocation
• 2026 change: Vestwell becomes the new program manager in June 2026 (replacing Ascensus). Expect transition communications.
• Enforcement: The Illinois Department of Revenue enforces Secure Choice. Non-compliance penalties scale from $250 per employee (first year) to $500 per employee in subsequent years.

If you hit 5 employees in 2026, you’ll get a registration notice with an access code. You can alternatively offer any qualified retirement plan and opt out of Secure Choice by certifying your exemption.

Step 7: Get Local Business Licenses and Industry-Specific State Licenses

Local Business Licensing

Illinois has no statewide general business license. Local requirements vary dramatically by municipality:

• Chicago: The BACP Small Business Center issues business licenses. The general categories are Limited Business License ($500 for a 2-year term under 2026 rates) and Regulated Business License ($1,000 for 2 years), with many industry-specific categories carrying their own fees. Food establishments, day care centers, tow trucks, mobile food vendors, massage establishments, and other regulated activities have separate license classes. Fees updated January 1, 2026.
• Aurora: City business license required for most businesses operating within city limits. Apply through Aurora’s Division of Community Services.
• Naperville: No general business license for most businesses, but industry-specific licenses and zoning approvals apply.
• Joliet, Rockford, Springfield, Peoria: Each city has its own licensing office and fee schedule – verify directly with the city clerk.
• Home rule vs. non-home rule: Illinois municipalities over 25,000 are automatically home rule (those under can opt in by referendum). Home rule cities have broader authority to impose local taxes and license fees. Chicago, Evanston, Oak Park, and dozens of others use home rule authority extensively.

IDFPR Professional Licenses (State Level)

The Illinois Department of Financial and Professional Regulation (IDFPR) licenses professions including cosmetologists, barbers, estheticians, nail technicians, private detectives and security agencies, roofing contractors, real estate agents and brokers, architects, engineers, physicians, nurses, and dozens of others. Cosmetology license requires 1,500 hours of training; private detective license requires 3 years of investigative experience or equivalent.

Note: Illinois does NOT have a statewide general contractor license, HVAC license, plumbing license (outside plumbers themselves – individual plumbers are licensed by IDPH), or electrical license. HVAC and electrical contractors are licensed at the municipal level – typically Chicago, Cook County suburbs, and the major Illinois cities all have their own contractor licensing offices with different exam and bond requirements.

Illinois’s Unique Compliance Environment in 2026

Three 2026-specific items materially affect small businesses in Illinois and are easy to miss:

1. AI discrimination law effective January 1, 2026. Illinois became the first state to make it a civil rights violation for an employer to use AI in employment decisions in a way that subjects employees to discrimination, or to use zip codes as a proxy for protected classes. Employers must also notify employees when they use AI in employment decisions. If you use AI-powered hiring tools, performance management software, or automated scheduling, audit them for disparate impact.

2. Biometric Information Privacy Act (BIPA) amendments effective August 2, 2024, now applied retroactively by the 7th Circuit (April 2026). A plaintiff’s remedies under BIPA are now limited to one violation per business regardless of how many times data was collected – ending the “per scan” liability that produced billion-dollar class actions. Biometric authorization may now be collected via electronic signature. If your business uses fingerprint clock-ins (common in cleaning, daycare, HVAC), facial recognition, or any biometric identifier, you still need written informed consent and a written retention/destruction policy.

3. Illinois Equal Pay Act pay transparency (15+ employees). Since January 1, 2025, Illinois employers with 15+ employees must include pay scale and benefits information in job postings. Plan job-posting template updates before you cross that threshold.

Illinois Market Context: Chicago, the Collar Counties, and Downstate

Illinois is the sixth-largest state by population (~12.5 million) and anchored economically by Chicago, which alone generates roughly a third of state GDP. Market realities by region:

• Chicago and the collar counties (Cook, DuPage, Lake, Will, Kane, McHenry): ~8.5 million people. Dense, high-income, regulated. This is where most Illinois small business starts – but also where the most overlapping regulation lives (Chicago city ordinances, Cook County ordinances, state law all stacking).
• Collar county suburbs: Naperville, Aurora, Elgin, Joliet, Schaumburg, Oak Brook. Strong residential markets for cleaning, daycare, landscaping, HVAC. Each has its own municipal licensing.
• Downstate Illinois (Rockford, Peoria, Springfield, Champaign-Urbana, Bloomington, Carbondale): Smaller markets but meaningful regional hubs. University towns (Champaign-Urbana, Carbondale, DeKalb, Normal) generate cyclical demand tied to academic calendars.
• Population trend: Illinois has had net domestic out-migration most years in the past decade but remains the 6th-largest state. Chicago metro in-migration from international and intrastate sources offsets much of the loss.
• Transportation hub advantage: O’Hare International, Midway, and six Class I railroads make Chicago the Midwest’s logistics center. This benefits food distribution (food trucks, cleaning supply), equipment supply (HVAC parts, landscaping equipment), and any small business with supply-chain intensity.
• Seasonality: Illinois winters materially affect landscaping (snow removal is a winter revenue stream worth explicitly building for), HVAC (heating system demand peaks November-February, cooling June-August), and food trucks (Chicago festival season runs May-October).

Illinois Business Guides by Industry

Every industry has different licensing, permit, and insurance requirements in Illinois. Select your business type:

• How to Start a Cleaning Service in Illinois – services generally exempt from state sales tax, IDES NAICS 56 rate, PLAWA/Chicago paid leave, workers comp at 1 employee
• How to Start a Food Truck in Illinois – IDPH Food Handling Regulation Enforcement Act, Chicago Mobile Food Vendor licenses, commissary requirements, festival permits
• How to Start a Daycare in Illinois – DCFS licensing under 89 Ill. Adm. Code 407, ExceleRate Illinois quality rating, Gateways credentials, CCAP subsidy
• How to Start an HVAC Business in Illinois – no state HVAC license, Chicago/suburban Cook County municipal licensing, EPA 608, 2024 Illinois Stretch Energy Code
• How to Start a Hair Salon in Illinois – IDFPR cosmetology license (1,500 hours), salon registration under Barber Cosmetology Esthetics Hair Braiding and Nail Technology Act
• How to Start a Landscaping Business in Illinois – Illinois Pesticide Act commercial applicator license, Illinois Lawn Care Products Application and Notice Act, snow removal as second revenue stream
• How to Start a Private Investigation Business in Illinois – IDFPR Private Detective License (3 years experience or degree+training), agency license, fingerprint background check

Key Illinois Business Resources

Resource	What It Covers
Illinois Secretary of State – Business Services	LLC formation, annual reports, assumed names, name searches
MyTax Illinois	Sales tax, income tax withholding, unemployment insurance registration and filing
Illinois Department of Revenue (IDOR)	Income tax, sales tax, Personal Property Replacement Tax, Secure Choice enforcement
Illinois Department of Employment Security (IDES)	Unemployment insurance, new hire reporting
Illinois Department of Labor (IDOL)	Minimum wage, Paid Leave for All Workers Act, wage and hour enforcement
Illinois Workers’ Compensation Commission (IWCC)	Workers’ comp insurance requirements, penalties, dispute resolution
IDFPR	Professional and occupational licensing (cosmetology, PI, real estate, etc.)
Illinois Secure Choice	Mandatory retirement program for 5+ employee businesses with 2+ years
Chicago BACP	Chicago business licensing, Office of Labor Standards, consumer protection

Frequently Asked Questions

How much does it cost to start an LLC in Illinois?

The Articles of Organization filing fee with the Illinois Secretary of State is $150 – whether you file online or by mail. Online processing runs 5-10 business days; 24-hour expedited service costs an additional $100. After formation, your annual report costs $75 per year, due by the first day of your LLC’s anniversary month. Late filing triggers a $100 penalty and, eventually, administrative dissolution. Optional costs: 90-day name reservation ($25), Assumed Name adoption if you operate under a different name (varies by filing year), and registered agent service if you use a third party.

Does Illinois require workers’ compensation for part-time employees?

Yes – Illinois requires workers’ compensation insurance from one employee, full-time or part-time, including family members. There is no minimum threshold or small-employer exemption. Penalties for operating uninsured are severe: fines up to $500 per day with a $10,000 minimum, Class A misdemeanor for negligent failure, Class 4 felony for knowing failure, and personal liability for corporate officers. The Illinois Workers’ Compensation Commission can also issue a work-stop order that halts operations entirely. Sole proprietors, partners, corporate officers, and LLC members may opt out of coverage for themselves, but not for their employees.

What is the Paid Leave for All Workers Act and where does it apply?

The Illinois Paid Leave for All Workers Act (PLAWA) requires Illinois employers of all sizes to provide 40 hours of paid leave per 12-month period. Employees earn 1 hour for every 40 hours worked and can use leave for any reason without providing a basis. But PLAWA does not apply in Chicago or Cook County because both had their own paid leave ordinances before January 1, 2024. Chicago follows the Chicago Paid Leave and Paid Sick Leave Ordinance (40 hours paid leave + 40 hours paid sick leave = 80 hours total). Cook County outside Chicago follows the Cook County Paid Leave Ordinance. If you have employees in multiple Illinois regions, you may be subject to three different paid leave rule sets at once.

What is the Personal Property Replacement Tax (PPRT)?

PPRT is an Illinois-specific tax on business income that replaced property taxes formerly levied on business personal property. It’s separate from regular income tax and paid to the state, which distributes it to local governments. Rates: 2.5% for corporations (making the combined corporate rate 9.5%), 1.5% for LLCs, partnerships, S-corps, and trusts. Sole proprietorships are not subject to PPRT. Most states do not have an equivalent tax – factor it into your Illinois tax projections.

What is Illinois Secure Choice and do I have to participate?

Illinois Secure Choice is a state-administered Roth IRA program mandatory for employers with 5+ Illinois employees who have been in business 2+ years and do not already offer a qualified retirement plan (401(k), SEP IRA, SIMPLE IRA, etc.). Employers facilitate the program via payroll deduction – no employer match required, no fees, no fiduciary liability. Employee default contribution is 5% with 1% annual auto-escalation. Vestwell takes over as program manager in June 2026 (replacing Ascensus). Non-compliance penalties start at $250 per employee in year one and $500 per employee thereafter, enforced by the Illinois Department of Revenue.

Does Illinois have a general business license?

Illinois has no statewide general business license. Most businesses need a sales tax account if they sell taxable goods (free to register on MyTax Illinois), a local business license in cities that require one (Chicago in particular – $500/$1,000 for 2 years under 2026 rates), and an IDFPR professional license if they practice a regulated profession (cosmetology, private investigation, real estate, etc.). HVAC, plumbing, and electrical contractors are licensed at the municipal level – Illinois has no statewide contractor license.

What is Illinois’s income tax rate for small businesses?

Illinois uses a flat individual income tax rate of 4.95% with no brackets. LLCs, partnerships, and S-corps pass income through to owners’ personal returns at 4.95%, and the business itself pays the 1.5% Personal Property Replacement Tax. C-corporations pay 7.0% corporate income tax plus 2.5% PPRT for an effective rate of 9.5%. Estimated quarterly payments are required if you expect to owe $500 or more.