Recent Illinois budget legislation will have an effect on virtually every working Illinois resident, as well as many corporations in Illinois.
The change that will affect most of us is the increase in the Illinois income tax rate for individuals, trusts and estates from 3.75% to 4.95%. This increase is effective as of July 1, 2017. Many payroll services did not have their programs updated for this increase until late July/early August, thus many employees may have some July/August payrolls under the old Illinois withholding rules. This may lead to slightly lower refunds or slightly higher balances due on Illinois tax returns for 2017. If your income is not earned evenly throughout the year, please keep track of your income from January through June that should be taxed at the lower rate. An election can be made to specifically allocate income.
Some of the additional significant changes included in this legislation were:
- The Illinois corporate income tax rate increases from 5.25% to 7.00% effective July 1, 2017. C Corporations also pay a 2.5% replacement tax for a new total tax rate of 9.5%
- Illinois taxpayers with AGI greater than $500,000, if married filing jointly, or $250,000 for all others, may no longer claim the personal exemption allowance, the Illinois property tax credit or the K-12 education expense credit. This is effective as of January 1, 2017.
- The Illinois research and development credit has been extended through 2021.
- If you receive a deduction for domestic production activities on your federal return, these must be added back on your Illinois return.
- The Illinois earned income credit increases from 10% of the federal credit to 14% in 2017 and to 18% in 2018.
- The maximum education expense credit increases from $500 to $750.
- A tax credit up to $250 has been created for teachers who use personal funds to purchase classroom supplies.
If you have any questions about these changes and how they may impact you, please contact us to discuss.