Press Room: Tax Release

January 18, 2011

Illinois Budget Related Tax Changes

On January 12, 2011, in the final hours of the final day of the State of Illinois 96th General Assembly’s veto session, both chambers narrowly passed Senate Bill 2505, which imposes income tax rate increases to individuals, trusts, estates and corporations. Net operating losses are also suspended and state spending limitations are imposed with tax reductions to the current pre-increase rates should state spending exceed certain limitations. The bill was signed by Governor Pat Quinn on January 13, 2011 and will be effective for taxable years beginning on or after January 1, 2011. The key components of Senate Bill 2505 are described below.

Individual Income Tax Rate

The Illinois Income Tax rate is increased from its current 3% rate for individuals, trusts and estates to the following:

  • 5% for taxable years beginning on or after January 1, 2011 and prior to January 1, 2015;
  • 3.75% for taxable years beginning on or after January 1, 2015 and prior to January 1, 2025; and
  • 3.25% for taxable years beginning on or after January 1, 2025.

Corporate Income Tax Rate

The corporate income tax rate is increased from its current 7.3% rate, which includes the personal property replacement tax rate, to the following:

  • 9.5% for taxable years beginning on or after January 1, 2011 and prior to January 1, 2015;
  • 7.75% for taxable years beginning on or after January 1, 2015 and prior to January 1, 2025; and
  • 7.3% for taxable years beginning on or after January 1, 2025.

Net Operating Losses

Net Operating Losses (NOLs) are suspended (except for S corporations) for tax years ending after December 31, 2010 and prior to December 31, 2014. NOLs generated during this period and all prior NOLs that could be carried forward into the suspension years are preserved and carried forward for the four year period.

Estate and Generation-Skipping Transfer Tax

The Illinois Estate and Generation-Skipping Transfer Tax Act, which lapsed in 2010, has been reinstated for persons dying after December 31, 2010. The reinstated tax is consistent with the law in effect for persons dying after December 31, 2005 and before December 31, 2009, which is that the tax is equal to the full amount of the state tax credit on the federal estate tax return that would have been allowed under the Internal Revenue Code in effect on December 31, 2001. The state tax credit rate table provided by the Illinois Attorney General’s office is used to calculate the Illinois tax. The rate is graduated up to a maximum of 16% of the adjusted taxable estate. The Illinois exemption equivalent is limited to $2.0 million. The current federal exemption is $5.0 million.

State Death Tax Credit Table

       Adjusted Taxable Estate: 

At Least But Less Than Credit Percent Of Excess Over
0 40,000 0 0.0% 0
40,000 90,000 0 0.8% 40,000
90,000 140,000 400 1.6% 90,000
140,000 240,000 1,200 2.4% 140,000
240,000 440,000 3,600 3.2% 240,000
440,000 640,000 10,000 4.0% 440,000
640,000 840,000 18,000 4.8% 640,000
840,000 1,040,000 27,600 5.6% 840,000
1,040,000 1,540,000 38,800 6.4% 1,040,000
1,540,000 2,040,000 70,800 7.2% 1,540,000
2,040,000 2,540,000 106,800 8.0% 2,040,000
2,540,000 3,040,000 146,800 8.8% 2,540,000
3,040,000 3,540,000 190,800 9.6% 3,040,000
3,540,000 4,040,000 238,800 10.4% 3,540,000
4,040,000 5,040,000 290,800 11.2% 4,040,000
5,040,000 6,040,000 402,800 12.0% 5,040,000
6,040,000 7,040,000 522,800 12.8% 6,040,000
7,040,000 8,040,000 650,800 13.6% 7,040,000
8,040,000 9,040,000 786,800 14.4% 8,040,000
9,040,000 10,040,000 930,800 15.2% 9,040,000
10,040,000 99,999,999,999 1,082,800 16.0% 10,040,000

 Local Government Impact

The Local Government Distributive Fund (LGDF) is excluded from the funds collected from the additional tax imposed under this act. Currently 10% of the collections under the individual income tax is allocated to LGDF for distribution to counties and municipalities based on their proportionate share of the state’s population.

Property Tax

Language from the original bill providing for a property tax rebate program was eliminated in the final bill. The current 5% of property tax paid credit under the personal income tax credit, however, was retained.

Our professionals can assist in understanding the intricacies of Illinois’ new tax changes. If you feel you may be affected by this notice, please contact your WTAS advisor.