Illinois’ Budget Brings Tax & Withholding Changes

The Illinois House voted to override Gov. Bruce Rauner’s veto of a budget package, giving the state its first spending blueprint in more than two years.  While this action eases some of Illinois’ financial woes, it’s fueled by a permanent 32 percent increase in the income tax rate, raising $5 billion more annually, and reducing spending by more than $2 billion.

Following the override of the governor’s veto, on July 6th Illinois enacted Public Act 100-0022 (Act) which makes several changes to Illinois’ corporate and personal income tax.

Key Tax Highlights Include:

  • Personal Income Tax Increase.  Effective July 1, 2017, Illinois income tax rates for individuals, trusts and estates increase from 3.75 percent to 4.95 percent;
  • Withholding.  Employers, payroll service providers, software developers, and payers of gambling and lottery winnings who withhold Illinois income taxes must now immediately adjust withholding tax rates (Booklet IL‐700‐T (Illinois Withholding Tax Tables) has been updated and is available on the Department website. (Illinois Dept. of Rev. Info. Bulletin No. FY 2018-03, 07/01/2017.)
  • Exemption and Credit Limitations for High Income Taxpayers.  For tax years beginning on or after January 1, 2017, taxpayer’s with AGI for the taxable years exceeding $500,000 for married filing jointly returns and $250,000 for all other returns may not claim: the personal exemption allowance; the K-12 Education Expense Credit; or the Illinois Property Tax Credit;
  • Corporate Income Tax Increase.  Effective July 1, 2017, for Corporations (excluding S Corporations) the Illinois income tax rate is increased from 5.25 to 7 percent;
  • Domestic Productions Activities Deduction Add-Back. For taxable years ending on or after December 31, 2017, the Domestic Production Activities Deduction allowed under IRC Section 199 must be added back to AGI for individuals or taxable income for all other taxpayers;
  • Research and Development Credit. The Illinois Research and Development Credit has been reinstated and is retroactive for the 2016 tax year subject to certain limitations;
  • Unitary Business Groups. Illinois Unitary business groups will no longer be allowed to exclude members classified as financial organizations, insurance companies or transportation companies pursuant to IITA Section 304;
  • Sales & Use Tax Changes:
    • Effective July 1, 2017, for sales and use tax, the manufacturing and assembling machinery and equipment exemption is expanded to include graphic arts machinery and equipment;
    • Effective July 1, 2017, tax is imposed on 100 percent of the proceeds from the sales of gasohol, which eliminates the current 20 percent exemption;
    • The 100 percent exemption for the majority blended ethanol fuel, 100 percent biodiesel, and biodiesel blends with more than 10 percent but no more the 99 percent biodiesel, is extended through December 31, 2023.
  • Education Expense Credit.  The education expense credit is increased to $750 for tax years ending on or after December 31, 2017. (See note above about limitations on taxpayer eligibility for the credit.)
  • Instructional Materials Credit.  A new credit (maximum $250.00) is created for taxpayers who are teachers, instructors, counselors, principals or aides in qualified schools (for at least 900 hours during a school year) for instructional materials and supplies.

The Illinois Department of Revenue has posted information concerning these changes on its website.

These changes will have various implications on taxpayers and may present individual and business planning opportunities.  Please contact your Warady & Davis LLP CPA advisor to discuss your tax situation and withholding adjustments at (847) 267-9600.


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