IVCA Continues Advocacy Following Illinois QSBS Rollback
During the 2026 legislative session, Illinois eliminated its state-level tax treatment for Qualified Small Business Stock (QSBS), effectively decoupling from federal Section 1202. While eligible investors may still receive the federal QSBS exclusion, gains that qualify for exclusion at the federal level are now subject to Illinois income tax beginning in 2026.
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Why It Matters
QSBS has long served as an important incentive for investment in early-stage companies by rewarding investors who provide patient capital to startups and emerging businesses. IVCA has consistently communicated to policymakers that QSBS helps attract investment, support innovation, and improve the likelihood that high-growth companies choose to start and scale in Illinois.
IVCA QSBS VALUE
IVCA Advocacy Efforts
Since passage of the legislation, IVCA members have engaged with legislators and state officials through meetings, calls, and policy discussions to convey the potential impact of the change on Illinois' entrepreneurial ecosystem.
While policymakers have acknowledged the economic contributions of the venture capital industry, restoring Illinois' QSBS treatment remains a significant challenge given the state's ongoing budget pressures and revenue needs.
IVCA's message to policymakers is straightforward: Illinois' economic future depends on its ability to attract and retain investment capital. Policies that increase the cost of investing, reduce incentives for entrepreneurial risk-taking, or single out investors for additional taxation send the wrong signal to the marketplace.
Investors evaluate opportunities across state lines every day. Tax policy, regulatory certainty, and overall business climate matter. If Illinois develops a reputation as a less favorable place to invest than neighboring and competing states, the result could be fewer dollars invested in Illinois companies, fewer startups reaching scale, and fewer jobs created here at home. At a time when states across the country are aggressively competing for entrepreneurs, emerging businesses, and growth capital, Illinois should be strengthening its competitive position and supporting the investment activity that fuels innovation and economic growth.
What We're Watching
The Illinois General Assembly will return for Veto Session later this fall, followed by the January 2027 lame-duck session and the start of the 105th Illinois General Assembly. IVCA will continue monitoring legislation affecting venture capital, private equity, innovation, and investment activity in Illinois and will keep members informed of significant developments.
At a time when competing states are actively courting entrepreneurs and investment dollars, Illinois should be working to attract capital, not create additional barriers to investment.