Last week the Illinois Senate and House passed the state’s budget bill. Part of the new budget requires the individual and corporate tax rates to be raised. The state also made some changes to credits, deductions and additions to income. Below you will find some highlights of the new rules. Please contact Cray Kaiser today if you have any questions.
Tax Rate Increases – Effective July 1, 2017:
- For individuals, the Illinois income tax rate is increasing from 3.75% to 4.95%.
- For C-Corporations, the Illinois Income Tax rate is increasing from 5.25% to 7%. Illinois C-Corporations also pay an additional replacement tax of 2.5%, which remains unchanged, therefore resulting in a total tax rate of 9.5% on net income in Illinois.
- For trusts and estates, the Illinois income tax rate is increasing from 3.75% to 4.95%. Trusts and estates also pay an additional replacement tax of 1.5%, which results in a total tax rate of 6.45%.
- Wages paid after July 1, 2017 should be subject to the new withholding rates factoring in this increase.
- If you are set up for estimated tax payments, payments due after July 1, 2017 may need to be adjusted to reflect the new rates.
- Replacement tax for flow-through entities such as S-Corporations and Partnerships remain unchanged at 1.5%.
- Pass-through withholding for non-residents receiving K-1’s from Illinois flow-through entities or trusts will be increased to reflect the new income tax increases for tax years ending on or after July 1, 2017.
Other credits, deductions and additions to income:
- The maximum amount of K-12 Education Expense Credit has been increased from $500 to $750 per family for tax years ending on or after December 31, 2017. This credit is not allowed for taxpayers if adjusted gross income exceeds $500,000 for married filing joint returns and $250,000 for all other returns.
- There is a new Instructional Materials and Supplies Credit of up to $250 for out of pocket classroom supplies and materials purchased by teachers, instructors, counselors, principals and aides working at least 900 hours during the tax year at qualified schools. This credit is available for tax years beginning on or after January 1, 2017.
- The Illinois Property Tax Credit will not be allowed for taxpayers if adjusted gross income exceeds $500,000 for married filing joint returns and $250,000 for all other returns for tax years beginning on or after January 1, 2017.
- The Domestic Production Activities Deduction allowed under Section 199 of the Internal Revenue Code must be added back to the adjusted gross income of individuals and the taxable income of all other taxpayers. This will affect tax years ending on or after December 31, 2017.
- The Research and Development Credit has been reinstated and is retroactive for the 2016 tax year.
- Effective June 1, 2017 the manufacturing and assembling machinery and equipment exemption is expanded to include graphic arts machinery and equipment.
We are awaiting additional guidance from Illinois on specific operational questions of the tax increase, specifically as they relate to the midyear adjustment. We will keep you informed as new information is available. Please contact us today if you would like to discuss how these changes will affect your tax situation.