The short answer
Yes, Illinois taxes tips in 2026, at its flat 4.95% rate. The federal tips deduction (up to $25,000) lowers your federal taxable income, but it does not lower the number Illinois starts from, so it has no effect on your Illinois return.
Why there is no Schedule M addback
Illinois Form IL-1040 starts with federal adjusted gross income on line 1. The federal tips and overtime deductions are not part of AGI: they are figured on Schedule 1-A, which starts from AGI, and subtracted later on Form 1040 line 13b to reach federal taxable income.
Because Illinois picks up the federal figure before those deductions are taken, the deductions never reach the Illinois return. There is nothing for Illinois to reverse, which is why Schedule M has no line for them and IDOR has not asked taxpayers to add them back.Illinois workers pay Illinois tax on their tips simply because the deduction was never in the Illinois calculation.
Getting state relief would take new Illinois law creating a subtraction for tips or overtime. No such subtraction exists for 2026.
Worked example: server earning $60K
Rosa is a single filer who works as a server in Chicago. She earns $45,000 in wages and $15,000 in qualified tips in 2026, and is well under the federal phase-out.
Federal return
Federal AGI (wages + tips): $60,000
Standard deduction: -$16,100
Tips deduction (Schedule 1-A, line 13b): -$15,000
Federal taxable income: $28,900
Federal tax saved by the tips deduction: $1,800
Illinois return
IL-1040 line 1, federal AGI: $60,000 (the tips deduction was never in this number)
Schedule M adjustment for tips: none
Personal exemption: -$2,925
Illinois taxable income: $57,075
Illinois tax at 4.95%: $2,825
Rosa keeps her federal savings of $1,800. Her Illinois tax includes $743 on her tips, the same as if the federal deduction did not exist.
Overtime works the same way
The federal overtime deduction (up to $12,500 single, $25,000 married filing jointly) is also figured on Schedule 1-A after AGI. It lowers federal taxable income only, so Illinois taxes overtime premium pay at 4.95% with no adjustment on Schedule M.
What this means for Illinois workers
The federal deductions keep their full federal value in Illinois. At the state level, tips and overtime are taxed like any other wages. Illinois is in the same position as Minnesota: both start from federal AGI, so the below-the-line federal deductions do not carry over, and no addback is involved.
For every state's treatment, see the state-by-state tips and overtime tax map. To estimate take-home pay, try the Illinois paycheck calculator, or see the Illinois tips tax page.