Most of what changes for a tradesperson in Illinois is set by the state, not Washington: how you get paid, whether you need to register, and what you owe in tax. Here is what actually differs, and where to run your own numbers.
Each section below points to a tool that runs your exact numbers for Illinois.
Tax in Illinois
Illinois has a flat 4.95% state income tax on top of your federal taxes. A flat rate makes the math simple: the same percentage applies whatever you earn. You still owe federal income tax and self-employment tax on your profit as well, and you make estimated payments to both the state and the IRS through the year.
On sales tax, Illinois follows the usual rule for the trades: your labor is not taxed, and you pay sales tax on your materials when you buy them rather than charging it to the customer.
Work out what to hold back on the Tax Set-Aside Calculator, which runs the federal and self-employment numbers for Illinois.
Getting paid: liens and retainage
A mechanic's lien is the tool that actually gets a Illinois contractor paid, and in Illinois you generally have to record it within 4 months of completion of your own contract, or of your extra work. Miss it and you lose the lien, so the dates matter.
Enforcing it has its own clock. 2 years from completion of your contract or extra work. Anyone with an interest in the property can cut that to 30 days by serving written demand that you sue (§60/34(a)), and missing it forfeits the lien. Work out your dates on the Lien Deadline tool, and if they are close, get an attorney to confirm them against the statute (770 ILCS 60/7(a), 60/7(d), 60/9, 60/24(a), 60/34(a)).
On money held back as retainage, here is where Illinois lands:
- Private work: 10% of any payment made before the contract is 50% complete.
- Public work: 10% of any payment made before the contract is 50% complete. 10% of the value of the completed work, for the first 50% of contract value.
- Release: Private: 15 days from approval of the payment application, which for this purpose includes a request for release of retainage; the application is deemed approved 25 days after the owner receives it unless he serves a written statement of the amount withheld and why. Public: no number of days is set at all. It falls due on the statute names no final-release event for public work.
- Prompt pay: Private: 15 calendar days from the contractor receiving each payment, final payment or retainage. Late payment carries 10% a year, and you can suspend work on 7 calendar days' written notice. Local public: 15 days, with 2% a month if the contractor has no reasonable cause.
Whether the rule covers your job at all is a separate question from the percentage. Private: contracts entered on or after 20 August 2019; the Act excludes work paid from public funds and single-family or 12-unit-or-fewer residential contracts. Public, local government: the contractor has furnished the bond or bond substitute the Public Construction Bond Act requires; added by P.A. 103-570 on 1 January 2024.
And the step-down is not the same thing as a right. Illinois cuts the rate to 5% when the contract is 50% complete. That drop is automatic once the condition is met, so it is money you are entitled to have back before the end of the job. The Act carries no reinstatement clause.
Heads up: The State-agency cap in 30 ILCS 550/1 is enacted but NOT yet in force: P.A. 104-168 commences 1 June 2027 and excludes the Department of Transportation even then. Until that date a state agency has no statutory ceiling.
Check the Retainage Calculator before you sign a contract that holds back more.
Free Illinois retainage letters
Three letters written for Illinois's rules, with the state's own release clock and its statutory citation already in them. Fill one in on screen and download it as a PDF or a Word file.
- Retainage Release Request (Illinois), for when the job is done and the money has not come back
- Retainage Overdue: Demand for Payment (Illinois), for when the release date has passed and nothing has arrived
- Retainage Held Above the Cap: Challenge Letter (Illinois), for when more is being held than the state appears to permit
Do you need a license in Illinois?
Illinois has no statewide general contractor license, so for most building work there is no state license to get. That is one of the things that makes Illinois straightforward to start in. It does not mean no rules at all: the state still licenses specific trades like electrical and plumbing, and your city or county can require its own registration or permits, so always check locally before you take a job on.
Trade licenses for electrical, plumbing and HVAC are usually separate and often required even where a GC license is not. See what applies to your trade on the Contractor License Checker.
Building codes and permits
Illinois has no single statewide building code, so the edition you build to and whether you need a permit depend on your city or county. Do not assume the town next door adopted the same code or the same amendments.
- Homes: none statewide; in a jurisdiction with no adopted code the builder and buyer may agree an edition by contract, and the current IRC excluding Parts IV and VII applies by default if they do not
- Electrical: none statewide for one- and two-family dwellings / the current or most recent preceding NEC for commercial buildings in jurisdictions that have adopted no code of their own
- Energy: 2024 (Illinois Energy Conservation Code, effective 30 November 2025)
- Plumbing: Illinois Plumbing Code, 77 Ill. Adm. Code 890 (state-authored, not an IPC or UPC adoption)
Illinois does not run one edition across the whole job, and the electrical code is where it splits: none statewide for one- and two-family dwellings / the current or most recent preceding NEC for commercial buildings in jurisdictions that have adopted no code of their own. That matters more than the number itself. If you work on houses, the residential edition is your book, and the single figure quoted in most adoption charts is the commercial one.
Illinois runs four different mechanisms rather than one code. No municipality or county is required to adopt a building code at all, and where none is adopted the residential code can be set by contract between builder and buyer. Electrical has no statewide rule for houses whatsoever. The energy code is the opposite: genuinely mandatory statewide with no opt-out, applying to every building even where the local authority does not enforce it, with an optional stricter Stretch Code a municipality may adopt instead. Plumbing is written by the state itself rather than adopted from a model code, so there is no IPC or UPC edition to quote. Chicago is home rule and runs its own codes across all four families.
Source: Capital Development Board under 20 ILCS 3105 and 815 ILCS 670 (residential); 20 ILCS 3105/10.09-1 (electrical, commercial only); 71 Ill. Adm. Code 600 under the Energy Efficient Building Act, 20 ILCS 3125/15 (energy); Illinois Department of Public Health, 77 Ill. Adm. Code 890 under 225 ILCS 320 (plumbing). Read against that source on 2026-08-25.
Check a specific job on the permit tool.
Pay and workers' comp
The minimum wage in Illinois is $15.00 an hour. Chicago is higher ($16.20). Not verified against Chicago; indicative only. That is the floor for anyone you put on the books, and it is worth confirming against the state labor department each year because several states step their rate mid-year. Check a rate on the minimum-wage tool.
On workers' comp, the rule that catches people out in Illinois is who has to be covered. Sole proprietors are exempt; corporate officers can elect to exclude themselves. Get a premium range for your trade on the Workers' Comp Estimator.
If a client will not pay
If a client will not pay, you can sue for up to $10,000 in Illinois's Circuit Court, small claims. That covers most unpaid-invoice disputes for a small outfit; a bigger claim goes to regular civil court where you will probably want an attorney. Walk through whether filing is worth it on the Small Claims checker.
The clock runs the other way too: a client generally has 10 years to sue you over the work under a written contract in Illinois, with an absolute cutoff 10 years after the job is substantially complete. Work out your exposure on the Warranty & Claim Deadline tool.
Common questions
How much state income tax will I pay in Illinois?
Illinois has a flat 4.95% state income tax on your profit, on top of federal income tax and self-employment tax. Use the Tax Set-Aside Calculator to see what to hold back.
Do I need a contractor's license in Illinois?
For most general building work, no. Illinois has no statewide general contractor license. The state still licenses specific trades and your city or county may require its own registration, so check both.
What is the small claims limit in Illinois?
You can sue for up to $10,000 in Illinois's Circuit Court, small claims. The filing fee is typically $90 to $340. Larger claims go to regular civil court.
How long do I have to file a mechanic's lien in Illinois?
Generally 4 months from completion of your own contract, or of your extra work. Miss it and you lose the lien. Work your own dates out on the Lien Deadline tool.
How much retainage can be held back in Illinois?
Private: 10% of any payment made before the contract is 50% complete. Public, local government: 10% of any payment made before the contract is 50% complete. Public, transportation: 10% of the value of the completed work, for the first 50% of contract value. The condition on it, in the statute's own terms: Private: contracts entered on or after 20 August 2019; the Act excludes work paid from public funds and single-family or 12-unit-or-fewer residential contracts. Public, local government: the contractor has furnished the bond or bond substitute the Public Construction Bond Act requires; added by P.A. 103-570 on 1 January 2024. Run your own figure on the Retainage Calculator.
Are there free Illinois contract and payment forms?
Yes. This page links 3 retainage letters written to Illinois's own release clock and carrying its statutory citation. They are free, there is no sign-up, and you fill one in on screen and download it as a PDF or a Word file.
What is the minimum wage in Illinois?
$15.00 an hour in Illinois, above the federal $7.25. Several states step their rate mid-year, so confirm it before you set a payroll.
The honest bit
These are the 2026 rules for Illinois as they stood when this guide was written, and they change: legislatures move thresholds, deadlines and rates every year. Treat this as general guidance to point you in the right direction, not legal, tax or financial advice. Verify anything you rely on at the source (the IRS, the Illinois tax and licensing agencies, and your local building department) or with a professional. Where Illinois does something unusual, the detail is called out above rather than glossed over.
Related: Tax Set-Aside Calculator · Mechanic's Lien Deadline · Contractor License Checker · Small Claims checker · Working in Your State
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Sources
- Illinois statutes (ilga.gov) · Mechanics lien notice, filing and enforcement deadlines in Illinois: 770 ILCS 60/7(a), 60/7(d), 60/9, 60/24(a), 60/34(a). Verified against this authority on 2026-08-12.
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