In response to the threat of the Illinois credit rating being downgraded to “junk bond” status, the Illinois General Assembly has passed the first state budget since 2015, and a multibillion-dollar income tax hike to support it.  The resulting Illinois Income Tax Act (IITA) produces a number of tax changes that impact individuals, corporations, and most other filing entities.  Some of the key components of the new law are as follows: 

Income Tax

• Effective July 1, 2017, income tax rates for individuals, trusts and estates increases to 4.95% (from 3.75%), and 7% (from 5.25%) for corporations, excluding S corporations. 
• Provisions included in the new law help to resolve how income should be allocated between the old and new tax rates when that income is not received proportionately throughout the year. Specifically, taxpayers may elect to determine net income separately for the portions of the fiscal year before and after the rate increase. This option means that all income earned before July 1, 2017 would be taxed at 3.75% and all income earned after July 1, 2017 would be taxed at 4.95% for individuals.   

Restrictions

• For tax years beginning on or after January 1, 2017, the personal exemption allowance, the K-12 Education Expense Credit, and the Illinois Property Tax Credit may not be claimed if the taxpayer’s adjusted gross income for the taxable year exceeds $500,000 for married filing jointly returns, or $250,000 for all other returns.

Unitary Businesses 

• For taxable years beginning on or after December 31, 2017, the definition of a “unitary business group” is amended to no longer allow the exclusion of financial organizations, insurance companies or transportation companies. 

Domestic Production Activities Deduction

• The Act decouples from the federal domestic production activities deduction (DPAD).

Research and Development Credit

• Originally expiring on January 1, 2016, the research and development credit has been restored and extended through December 21, 2021.

Sales Tax

• There is no change to the sales tax rate, nor does The Act add services to the sales tax base.

The full text of the new law can be viewed online here and a condensed version is available online here.