Illinois is introducing a significant change to sales tax on groceries, effective January 1, 2026. The statewide one-percent sales and use tax currently applied to many grocery items will be eliminated, and municipalities and counties will have the authority to adopt their own one-percent grocery tax.

This shift brings both relief and complexity to retailers, municipalities, and consumers alike. Below is a breakdown of what’s changing, who is impacted, and what steps retailers need to take to remain compliant.

What Exactly Is Changing?

State-level Tax Removal

• As of January 1, 2026, Illinois will no longer impose the 1% reduced rate state sales tax on grocery sales (“qualifying food”) that have historically been taxed separately from other items. 
• The reduction is intended to ease the tax burden on consumers purchasing groceries.

Local Option Tax

• Despite the elimination of the state-level grocery tax, local governments (municipalities and counties) may adopt a 1% grocery tax by ordinance under Public Act 103-0781. 
• For a local grocery tax to take effect January 1, 2026, the ordinance must have been filed with the Illinois Department of Revenue (IDOR) by October 1, 2025, and approved.
• If a local government missed that deadline, they still have the ability to file — but the effective date shifts:
  • Ordnances filed by April 1 of a given year take effect July 1 that year.
  • Ordinances filed by October 1 take effect January 1 of the following year. 

In practice, many municipalities have already filed such ordinances. As of the bulletin’s publication, IDOR had received more than 600 local grocery tax ordinances. 

Which Items Are Affected?

The local grocery tax is limited in scope: it applies only to the same items currently taxed under Illinois’ “qualifying food” rules. 

Excluded items, which will continue to be taxed at the general merchandise (i.e., higher) rate, include:

• Alcoholic beverages
• Soft drinks (non-qualifying “beverages”)
• Candy
• Food prepared for immediate consumption (i.e., “hot foods”)
• Food infused with adult-use cannabis

These exclusions mirror Illinois’s existing rules under 86 Ill. Adm. Code Section 130.310. 

Separately, medical appliances and qualifying drug items that currently pay the 1% tax will continue to be subject to the 1% tax. They are not affected by this change. 

Reporting & Compliance: What Retailers Must Do

Retailers must begin using updated versions of Form ST-1, ST-2, and their amended counterparts for reporting periods on or after January 1, 2026. 

• The updated returns will include specific lines for grocery receipts and grocery tax collected. Retailers must report grocery sales differently depending on whether the location is in a jurisdiction that has adopted the local tax or not.
• If you file via MyTax Illinois, the correct version of the return will be auto-populated based on the reporting period. 

What This Means for Stakeholders

Retailers

• Retailers must update systems and point-of-sale logic to distinguish and report groceries under the new reporting structure properly.
• They need to track which jurisdictions impose a local grocery tax and, for each store location or shipping address, determine the applicable status. IDOR provides a Local Government Grocery Tax Ordinance Information report for that purpose. 
• Retailers will also receive notifications from IDOR via MyTax Illinois or mail if their location is impacted. 
• Staff training will be key to avoiding misclassification or misreporting.

Municipalities / Counties

• Those interested in adopting a local grocery tax must ensure their ordinance is filed in a timely manner to meet effective dates.
• Local governments will need to coordinate with IDOR, review revenue projections, and communicate implications to retailers and taxpayers.
• Municipalities may use the additional revenue stream to fund local services or offset other tax burdens.

Consumers

• While removing the state grocery tax reduces the tax burden in non-taxing localities, local grocery taxes may offset that relief where adopted.
• In jurisdictions that do adopt the local tax, grocery purchasers may see little or no net change, but it ensures the tax burden is more locally controlled.

Key Takeaways & Next Steps

1. State 1% grocery tax ends on December 31, 2025. 
2. Local grocery taxes (1%) are optional for municipalities and counties. They must file ordinances by the deadlines to control their effective dates. 
3. Retailers must update reporting forms, systems, and processes to capture grocery receipts and tax properly starting January 2026.
4. Jurisdictional determination matters: both store location and delivery destination can trigger the local grocery tax.
5. Use the IDOR ordinance status reports and MyTax Illinois rate finder to verify whether a local grocery tax is in place for your area. 

How Thompson Tax Can Help

Navigating new tax legislation can be complex, especially when it involves multiple jurisdictions, new filing procedures, and system updates. At Thompson Tax, we help businesses stay compliant and confident through every transition. Our team can:

• Review your sales tax collection and reporting processes for Illinois locations and remote sales.
• Identify whether your stores or delivery zones fall under new local grocery tax ordinances.
• Provide filing guidance tailored to your business operations.

As Illinois moves toward this new local grocery tax framework, proactive planning will minimize compliance risks and avoid costly errors. Contact us today to ensure your business is prepared for the January 2026 changes. We are your Trusted Tax Advisors.