Illinois Income Tax Increase

Effective July 1, 2017, the Illinois income tax rates are increased to 4.95% for individuals, trusts and estates, and the corporate income tax rate to 7%.

Since the tax rate increased in the middle of the tax year for calendar year taxpayers, the Act contains a number of provisions intended to resolve questions regarding how income should be allocated between the two rates in effect for 2017. Under the specific accounting method, a taxpayer can treat their income and state modifications as though they were earned in two different taxable years. For an individual, the amount earned prior to July 1, 2017, is taxed at 3.75%. The amount earned on or after July 1, 2017, is taxed at 4.95%. The two tax amounts are then added together to get the total tax liability. This provision will create planning opportunities for taxpayers.

Illinois Income Tax Act provides a default rule or so called blended rate, a proration based on the days in each period, for purpose of allocating 2017 income.

Taxpayers who have received uneven income streams in 2017, particularly a frontloaded income stream, should consider calculating the liability using the effective dates referenced above.

It is likely that the state will boost the “prior year” safe harbor rate for estimated tax purposes, but nothing is certain yet. The House just overrode the Governor’s veto a short time ago, so details will follow. All that is known for certain at this point is that the tax rates increased effective July 1, 2017.