In early July, the Illinois Senate and House overrode Governor Rauner’s veto and passed its first state budget since fiscal year 2015. This bill included a large increase in the individual and corporate income tax rates retroactive to July 1, 2017.
- Individual, trusts, and estate income tax rates were increased from 3.75% to 4.95%.
- The corporate income tax rate was increased from 5.25% to 7%.
- S Corporations and Partnerships, which have both a replacement tax of 1.5% and a pass through withholding liability/tax, will have an increase from 3.75% to 4.95% on the pass through withholding while the replacement tax rate remains the same.
Because the effective date of the tax rate increase is July 1st, Illinois has stated income earned during the first half of 2017 will be taxed at the old rate while income earned during the second half of 2017 will get taxed at the new rate. Illinois has issued an information bulletin which outlines the two methods allowed for calculating your Illinois income tax liability whereas there will be two tax rates which will apply in 2017.
Any filers which make estimated tax payments should adjust their 2017 estimated payments for the remainder of the year to account for the income tax rate increase. In order to reduce or eliminate underpayment penalties this midyear rate increase may cause, the annualized income installment method (using Form IL-2210 or IL -2220) will need to be filed. Therefore, accurate monthly income tracking will be very important. Additional guidance from Illinois is expected in January of 2018.
This mid-year increase is sure to cause headaches and catch many taxpayers unaware. If you have Illinois-sourced income, please contact your Somerset advisor with questions or assistance in making any necessary changes at 317-472-2202 or firstname.lastname@example.org.