Illinois Income Tax Update
Income tax rates in Illinois increased effective July 1, 2017. Because this decision came in the middle of 2017, it created some confusion regarding how to calculate 2017 taxes and how it affects estimated tax payments.
The income tax change affects individuals as well as corporations residing in the state of Illinois. For individuals, trusts, and estates, state income tax will increase from 3.75% to 4.95%. For corporations (excluding S corporations), state income tax will increase from 5.25% to 7%. The 1.5% replacement tax for trusts, partnerships, and S corporations has not changed.
For individuals, everything earned in 2017 before July 1 will be taxed at the 3.75% tax rate. Everything earned starting on July 1, 2017, and going forward will be taxed at the new income tax rate of 4.95%. Add the two amounts to figure your total Illinois tax due for 2017.
If you receive a paycheck, your employer should increase the state tax withholding automatically from any paycheck you will receive after July 1. Keep in mind that Illinois still does not tax Social Security income and certain retirement plan income (such as IRAs, 401(k)s, and pensions).
To avoid penalties, individuals who make quarterly estimated payments must be aware of the change and take action as soon as possible. They should contact their accountant to update their 3rd and 4th quarter estimated payments. All estimated payments due after July 1, 2017 will be calculated based on the new higher tax rate. By January 2018, the State of Illinois will provide more guidance and instructions on 2017 income tax calculation methods and procedures.
The State of Illinois tax authorities will be updating their websites with the most recent publications. It is recommended to visit tax.illinois.gov regularly to stay informed and up to date.
Information Sources: http://www.revenue.state.il.us/Publications/Bulletins/2018/FY-2018-02.pdf
This is intended for informational purposes only and should not be construed as personalized tax advice. Please consult your tax professional regarding your specific circumstances.