Illinois vs Indiana: The Chicago Suburb Cross-Border Math (2026)

Side-By-Side: Illinois vs Indiana (Lake County)

Single filer, all wage income. Indiana column uses Lake County's 1.5% CAGIT (the canonical Chicago-suburb destination county). Higher-CAGIT Indiana counties produce different totals.

Illinois numbers use 4.95% on Illinois adjusted gross income with the standard $2,775 personal exemption. Indiana numbers use 3.05% state plus 1.5% Lake County CAGIT on Indiana adjusted gross income with $1,000 personal exemption. Differences in deduction structure produce small variations from a pure rate-multiplied estimate.

The Indiana County Map

All 92 Indiana counties levy CAGIT. Per the Indiana Department of Revenue 2026 county tax rates table, the rates cluster in a few bands.

Lowest band (around 0.5% to 1.5%): Lake (1.5%), Porter (0.5%), Marion (Indianapolis, 2.02%), and a handful of southern Indiana counties. These are the cheapest Indiana counties for income-tax purposes and include the canonical northwest-Indiana destinations for Chicago-area cross-border movers.

Mid band (around 1.5% to 2.5%): most of the central Indiana counties, including Hamilton (Carmel, Fishers; 1.0% but with municipal supplements), Hendricks (1.7%), Hancock (1.94%) and Johnson (1.4%). For a typical Indianapolis-area resident, the combined state plus county rate lands around 4% to 5%.

High band (above 2.5%, up to 3.0%): Pulaski County (3.0%) tops the list, followed by Steuben (2.79%), Cass (2.95%) and several rural northern counties. The combined Indiana state plus county rate in these counties lands at 5.85% to 6.05%, exceeding Illinois's flat 4.95% by 90 to 110 basis points. A move from Chicago to Pulaski County, Indiana would actually increase income-tax burden, not decrease it.

The Illinois Retirement-Income Exemption (And Why It Reverses the Math)

Illinois fully exempts almost all forms of retirement income from state income tax. Per the Illinois Department of Revenue, Social Security benefits are exempt, federal pensions are exempt, Illinois state and local government pensions are exempt, military pensions are exempt, and qualified employer-sponsored retirement plan distributions including 401(k) and traditional IRA withdrawals are exempt. Roth IRA distributions are exempt as already-after-tax. The exemption applies regardless of age.

Indiana exempts Social Security but taxes private pensions, 401(k) and IRA distributions at the state 3.05% plus county rates. Indiana provides a $16,000 deduction for filers age 65 or older (Indiana Code 6-3-2-9), plus a smaller deduction for military pensions and an exclusion for railroad retirement benefits.

For a retired Illinois couple drawing $60,000 from a 401(k) and $30,000 from Social Security, Illinois taxes zero. The same couple in Lake County, Indiana would pay tax on the $60,000 401(k) at combined 4.55% rates after the $16,000 deduction (per filer for age 65+, so potentially $32,000 total), netting around $28,000 of taxable retirement income at 4.55% = roughly $1,275 in Indiana state plus county tax. The cross-border move actually costs roughly $1,275 a year for a retiree of this profile, the opposite of the wage-earner case.

Reciprocity: Wage Income, Not Self-Employment

Illinois has reciprocity with Indiana, Iowa, Kentucky, Michigan and Wisconsin. An Indiana resident working at a Loop office in Chicago files only the Indiana resident return on the wage income; an Illinois resident working in Hammond files only the Illinois resident return. Form IL-W-5-NR (Illinois) or Form WH-47 (Indiana) submitted to the employer stops the wrong-state withholding. The employer in the work-state withholds the home-state tax via reciprocity instead.

Reciprocity does not extend to self-employment income, partnership distributions, or rental income. An Indiana resident with self-employment work performed in Illinois owes Illinois non-resident income tax on the Illinois-source self-employment income, with a credit on the Indiana resident return for tax paid to Illinois. The mechanics are similar to the NJ-NY commuter case described in our New Jersey vs New York reference, but the dollar amounts are smaller because the rate gap between IL and IN is smaller.

For Chicago-area W-2 workers commuting from Northwest Indiana into the Loop, reciprocity makes the cross-border decision purely a residence question: where you live drives where the wage tax goes. The income-tax differential is the same whether you live in Indiana and work in Illinois or live in Indiana and work remotely.

Property Tax: The Bigger Lever

Illinois has the second-highest property tax burden in the United States. Per the Tax Foundation property-tax data, the Illinois statewide effective property tax rate is approximately 2.07% of home value. Cook County (Chicago and inner suburbs) runs around 2.10% to 2.30% effective; the collar counties (Lake IL, DuPage, Kane, Will, McHenry) run 2.0% to 2.5% effective. Indiana's effective property tax rate is approximately 0.84% statewide, with Lake County, Indiana at approximately 0.84% and Porter County at approximately 0.78%.

For a $300,000 home, annual property tax is approximately $6,200 in Cook County, Illinois, and approximately $2,500 in Lake County, Indiana. The cross-border savings from a Calumet City to Hammond move at $300,000 home value is approximately $3,700 a year in property tax. That dwarfs the income-tax savings, which on a $100,000 income with the Lake County 1.5% CAGIT rate is approximately $325 a year (the IL 4.95% vs IN 4.55% delta).

For higher-value homes the property-tax gap widens further. A $600,000 home in Naperville, Illinois (DuPage County, around 2.2% effective) costs approximately $13,200 a year in property tax. A $600,000 home in Munster, Indiana (Lake County, around 0.84% effective) costs approximately $5,000 a year. The annual savings from the cross-border move at this home value is approximately $8,200 in property tax alone, against income-tax savings around $400 to $600 a year on a comparable wage. Property tax is the dominant driver of the IL-to-IN total tax burden differential, not income tax.

Persona Verdicts

• $80K wage earner, Calumet City, IL vs Hammond, IN: Income tax: IL ~$3,762; IN (Lake County 1.5%) ~$3,490. Income-tax savings around $270/year. Property-tax savings on a $250,000 home ~$3,000/year. Total savings ~$3,300/year favouring the Indiana move.
• $200K Chicago tech worker, Naperville vs Munster: Income tax: IL ~$9,702 (4.95% with personal exemption); IN ~$8,840 (4.55% Lake County combined). Income-tax savings ~$860/year. Property-tax savings on a $500,000 home ~$6,500/year. Total savings ~$7,400/year favouring Indiana.
• Retired couple, $90K combined retirement income, Hinsdale, IL vs Carmel, IN: Illinois taxes zero on retirement income. Indiana (Hamilton County combined ~4.05% with municipal stack) taxes the $60K above the $32K combined age-65 deduction at ~4.05% = roughly $1,140/year. Income tax favours Illinois by ~$1,140/year. Property-tax savings of ~$5,500/year still favour Indiana on a $400,000 home. Net favours Indiana, but by less than the income-tax-only comparison would suggest.
• Self-employed consultant, $250K, Oak Park, IL vs Highland, IN, work performed in IL: Reciprocity does not cover SE income. Consultant pays IL non-resident tax on IL-source work plus IN resident tax on the same income with credit for IL tax paid. Net IL state-tax burden ~$12,177; IN credit consumes ~$11,250 of IN liability; consultant pays ~$12,177 + small residual ~$927 net. Effectively the IL liability dominates. Cross-border move helps less for SE workers than for W-2 workers due to source-of-income rules.