Chicago Checkout Bag Tax: Charging 15 Cents Correctly at the POS

On this page 8 sections

1. The Chicago Bag Tax Is No Longer 7 Cents
2. How the Chicago Checkout Bag Tax Works in Practice
3. Which Bags Are Taxed and Which Are Exempt
4. Setting up the Bag Tax as a POS Line Item
5. What Must Appear on the Customer Receipt
6. How Much You Keep and How Much You Remit
7. Filing and Paying the Department of Finance
8. Check Your Register Before the Next Budget

Key takeaways

• If your register still charges 7 cents, you lose 7 cents on every taxable bag. At 10 cents, you lose 4. You still owe the wholesaler the full 14-cent net.
• Bags that carry SNAP purchases ring at $0.00, but you still need to count them. That count is how you claim the credit on your next wholesaler bill.
• Most stores never file with the city. They pay the tax on the bag supplier's invoice. You only file directly if your supplier didn't collect the tax.
• If you charge customers the tax, the receipt line must read "Checkout Bag Tax." Labels like "bag fee" don't meet the city's requirement.

The Chicago checkout bag tax is 15 cents per paper or plastic checkout bag, effective January 1, 2026. Each store keeps 1 cent per bag, and the other 14 cents goes to the city, usually through the wholesaler that sold you the bags. If you charge customers for it, the tax goes on its own receipt line labeled "Checkout Bag Tax." Any register programmed in 2017 or 2025 and not updated since is charging the wrong amount.

The Chicago Bag Tax Is No Longer 7 Cents

The tax started on February 1, 2017, at 7 cents a bag, with the retailer keeping 2 cents and remitting 5. That's the rule most older guides, and many POS item libraries, still reflect. It has changed twice since. The Chicago Department of Finance's Checkout Bag Tax page lists three rates:

The 2025 change came through the city's January 2025 tax rate notice, and the 2026 change through the January 2026 notice. Both arrived with the city budget and took effect on New Year's Day. The current text is in Chapter 3-50 of the Chicago Municipal Code, and Section 3-50-050 sets the 1-cent retention and the 14-cent net remittance. Rates are as of November 2026.

This is city law. It isn't a card network rule or a processor fee, and your processor can't waive it.

How the Chicago Checkout Bag Tax Works in Practice

The ordinance taxes the "retail sale or use" of checkout bags in the city. As a 2017 Consumer Products Law Blog analysis noted, it covers any business selling physical goods. A boutique on Armitage owes it the same way a supermarket does.

The tax is collected before the bags ever reach your counter. Under Section 3-50-050, the wholesaler that sells checkout bags to a Chicago store collects the tax when the store buys them. The store then collects it from customers at the register. If you buy bags from a supplier that didn't collect the tax, such as an out-of-state vendor that isn't registered with the city, the obligation falls on you: you collect the tax and remit it directly to the Department of Finance.

A store that gives bags away has two options. According to the city's Checkout Bag Tax FAQ, it can either charge the tax and state it separately, or leave it off the receipt and pay the tax itself.

Which Bags Are Taxed and Which Are Exempt

A taxable checkout bag is a paper or plastic carryout bag that a store provides to carry goods out of the store. The city presumes every bag a store uses is taxable, and the store has to prove otherwise.

The city lists the exemptions, and WTTW and the Chicago 311 FAQ summarized them when the tax launched. They include:

• Bags used inside the store for bulk items such as produce, nuts, grains, candy or small hardware
• Bags a pharmacist provides to hold prescription drugs
• Multi-bag packages sold as garbage, pet waste or yard waste bags
• Newspaper bags, and dry cleaning or garment bags
• Plastic bags with a retail price of at least 50 cents each
• Bags customers bring from home
• Bags provided by a dine-in or take-out restaurant to hold food or drink its customers bought

The full list in Chapter 3-50 has a few more in-store packaging categories, so check the ordinance itself before you treat any other bag as exempt.

Chicago Bag Tax and SNAP Purchases

The tax doesn't apply to bags used to carry items bought through SNAP or a similar government food assistance program. This is the exemption that grocery and corner stores most often get wrong. Cashiers have to ring those bags at zero, and the store has to count them, because the city FAQ says retailers claim credit for exempt bags on the next bill from their wholesaler. A credit you can't document is hard to defend.

Mixed baskets need a rule too, for example SNAP-eligible groceries paid by EBT alongside paper towels paid by card. Decide in advance how cashiers count those bags, put the policy in writing and confirm it with the Department of Finance or your tax adviser.

Deli Counters and Hot Food Inside a Store

A grocery store with a prepared-food counter can treat those bags as exempt restaurant bags only if its records clearly separate restaurant sales from other sales. The city's Affidavit for Apportionment of Use of Checkout Bags by Mixed Use Facilities uses that sales split to set the taxable share of purchased bags.

Setting up the Bag Tax as a POS Line Item

Many POS tax settings assume a percentage rate, but this tax is a flat charge per bag. The usual fix is a separate non-inventory item. The setup looks like this on most systems:

1. Create an item named "Checkout Bag Tax" priced at $0.15. Turn on quantity entry and put it in its own category, such as "Taxes and Fees," so it doesn't inflate merchandise sales in your reports.
2. Ask your accountant whether Illinois sales tax applies to that line, and set the item's tax flag to match. Don't guess.
3. If you also charge a price for the bag itself, which the ordinance allows, build that as a separate item. The bag's price and the bag tax are different lines.
4. Add a second item, "Bag Tax Exempt – SNAP," priced at $0.00. It charges the customer nothing but records the count you need for the wholesaler credit.
5. Put both on the first screen and train cashiers to ask "How many bags?" before tender, not after.
6. Add the same items to every device that takes payment: countertops, self-checkout, and any handhelds or mobile terminals used for line-busting or sidewalk sales.
7. Run a monthly report on the bag tax item and compare the quantity to the bags you bought. A large gap suggests cashiers are skipping the prompt. Voids and deletions on that line belong in your POS exception reports.

If you're replacing a register anyway, MannyPay sells POS systems for retail checkout from Clover, Valor, Dejavoo and PAX. Test the bag tax item on any model before it goes on the counter. Our guide on setting up NYC's clothing sales tax exemption in your POS works through a similar problem.

Liquor stores have a second 2026 change to set up. The same January 2026 notice requires package goods license holders to collect a new 1.5% city liquor tax, paid monthly by the 15th. Set up and test both changes together.

What Must Appear on the Customer Receipt

When a store sells a bag to a customer, the city FAQ requires the tax to be charged, separately stated and identified as "Checkout Bag Tax." That means three things for your receipts:

• Use the exact label. "Bag fee," "PPR BAG" or "Bag charge" doesn't meet the requirement.
• Show the quantity. "Checkout Bag Tax 3 @ $0.15 = $0.45" lets the customer check it.
• Keep it apart from the bag's price. If you charge 10 cents for a paper bag on top of the tax, that's two lines.

Customers notice mistakes. In 2024, CBS Chicago reported on a grocery chain whose receipts showed a 10-cent "paper bg fee" when the tax was 7 cents. The chain fixed both the amount and the label after the station asked about it.

How Much You Keep and How Much You Remit

The math is per bag: collect 15 cents, keep 1 and send 14. The worked example below shows where stores lose money.

Illustrative example. Assumptions: a neighborhood grocery buys and uses 8,000 bags in a month from a registered wholesaler that collected the net 14 cents per bag on the invoice. Of those bags, 600 carried SNAP purchases. Nothing here is real store data.

The $74 equals 7,400 taxable bags times the 1-cent retention, which is a quick way to check your own numbers.

Now say the same store's POS still charges the old Chicago bag tax rate of 7 cents. It collects 7,400 × $0.07 = $518 but still owes $1,036, so it pays the $518 difference out of margin every month, or $6,216 over a year. A store stuck at the 2025 rate of 10 cents collects $740 and is $296 short each month. If the store never records SNAP bags, it either overcharges those customers or loses track of the $84 credit.

The "retailer keeps 2 cents" rule no longer applies. Since January 1, 2025, retention has been 1 cent per bag, even though the tax has more than doubled. Take a boutique that absorbs the tax on 500 free branded paper bags a month (illustrative). Its cost is 500 × $0.14 = $70 a month. Weigh that against charging customers the tax or asking whether they need a bag.

Filing and Paying the Department of Finance

For most stores, paying the tax just means paying the bag tax on the wholesaler's invoice and taking exempt-bag credits on the next bill. The wholesaler registers with the city and remits the tax.

Stores that remit directly, because their supplier didn't collect the tax, must register with the Department of Finance, according to the city's 311 notice on the tax. The return is Form 2737. Per the city's Tax Division FAQs, most city taxes are paid by the 15th of the following month, and returns must be filed electronically. You register through Chicago Business Direct. The same FAQ says most city returns are filed annually, due August 15 for the July-through-June year. Confirm the payment and return schedule for your Form 2737 account with the Department of Finance rather than relying on that general rule.

The late filing penalty is the greater of 1% of the total tax due, up to $5,000, or 5% of the amount payable with the return. Keep the monthly bag reports from step 7 with your wholesaler invoices. Because the city presumes every bag is taxable, those records are how you prove an exempt bag in an audit.

This is general information, not tax or legal advice. Confirm your setup with a qualified tax professional or the Department of Finance.

Check Your Register Before the Next Budget

Ring up one bag on every register and device you own today. If you charge customers the tax and the receipt doesn't say "Checkout Bag Tax" at $0.15, fix it before the next sale. Then put a reminder on your calendar for December. The 2025 and 2026 increases both came in through the city budget and took effect on January 1. Watch what the City Council approves for 2027, and change the item price the day the new rate starts. If you run a grocery market, liquor store or apparel boutique in Chicago and want help building the bag tax into a new POS, you can request a free quote from MannyPay. A specialist responds within one business day.

Sources

1. City of Chicago Department of Finance, Checkout Bag Tax (2737)
2. City of Chicago, Tax Rate Changes as of January 2026
3. City of Chicago, Tax Rate Changes as of January 2025
4. Chicago Municipal Code Chapter 3-50, Section 3-50-050 Collection, Remittance and Payment
5. Chicago Department of Finance, Chicago Checkout Bag Tax Frequently Asked Questions
6. Chicago 311, Checkout Bag Tax Frequently Asked Questions
7. Chicago 311, Checkout Bag Tax
8. Chicago Department of Finance, Affidavit for Apportionment of Use of Checkout Bags by Mixed Use Facilities
9. City of Chicago, Tax Division FAQs
10. WTTW, Chicago's 7-Cent Bag Tax to Start Feb. 1
11. Consumer Products Law Blog, Chicago Checkout Bag Tax Set to Begin
12. Evanston RoundTable, Here's How Evanston's New Plastic Bag Ban Affects Stores (quotes Chicago's bulk-goods exemption)
13. McDonald Hopkins, Illinois: Chicago's Checkout Bag Tax Explained (restaurant exemption)
14. CBS Chicago, Mariano's Overcharges Customers for Chicago's Checkout Bag Tax

AR

About the author

Adrian Reyes

Adrian Reyes is Senior Payments & Fintech Editor for Beyond the Swipe, covering credit card processing, merchant accounts, payment technology and processing fees.

This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.