July 19, 2017   //   Tax   //   By Tax Department

Individual Tax Changes

 Rate Increase:  For individuals, trusts, and estates the rate is increasing from 3.75 percent to 4.95 percent.  The new rate is effective for income received on or after July 1, 2017.

Property Tax Credit: The income tax credit for Illinois property taxes on a principal residence is eliminated for higher income taxpayers.  No credit can be claimed for single taxpayers with adjusted gross income in excess of $250,000 or joint filers with incomes in excess of $500,000.

Personal Exemption and Additional Exemptions for Seniors and Blindness:  The personal exemption and the additional allowances for seniors and blind taxpayers have been eliminated for high income taxpayers.  Again the income threshold limits are $250,000 for single taxpayers and $500,000 for joint filers.

Education Expense Credit: The education expense credit for grades Kindergarten through 12 has been increased to $750 from $500 for tax years ending on or after December 31, 2017.  No credit can be claimed for higher income taxpayers:  single filers with adjusted gross income in excess of $250,000; and joint filers with incomes in excess of $500,000.

Estimated Tax Payments:  For taxpayers required to make estimated tax payments, the new rate of 4.95% will apply to income received on or after July 1, 2017.  Estimated payments due September 15, 2017 and January 15, 2018 may need to be adjusted to reflect the higher rate.

In figuring the tax for 2017, taxpayers will be permitted to use a blended rate based on the number of days in the tax year before the rate change and the number of days in the tax year after the rate change. Alternatively, taxpayers may use a specific accounting that treats their net income and modifications as though they were received in two different periods (pre and post July 1, 2017) and calculate the income tax due at the appropriate rate for each period.  Taxpayers must complete Schedule SA to use the specific accounting method. The Illinois Department of Revenue says that Schedule SA and revised Illinois estimated tax vouchers and worksheets will be available on their website in the future.

New Credit for Educators: The law change provides a new credit of up to $250 for instructional materials and supplies used for classroom instruction.  The credit may be claimed by teachers, principals, aides or counselors who work in schools for at least 900 hours during the school year. Unused credits may be carried forward five years.

Earned Income Tax Credit: The Illinois Earned Income Credit increases from the current 10% of the federal credit amount to 14% in 2017 and 18% in 2018.

S-Corps & Partnerships

S-Corps & Partnerships: There was no change in the Personal Property Replacement Tax rate.

Income Tax Withholding: The Illinois Income Tax rate for individuals has increased from 3.75% to 4.95%, effective July 1, 2017.  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 Illinois Department of Revenue’s website).

R&D Credit: The research and development credit is retroactively extended to tax years ending prior to January 1, 2022. This now allows taxpayers to claim the credit for 2016.

Domestic Production Activities (IRC Section 199): The qualified domestic production activities deduction taken on the federal tax return will now be required to be added back to income for Illinois beginning with tax years ending on or after December 31, 2017.

Corporations

C Corporate Tax Rate Increase:  The income tax rate for C corporations is increasing from 5.25% to 7%. The new rate is effective for income received after July  1, 2017. This brings the total corporate tax rate in Illinois to 9.5% when the 2.5% personal property replacement tax is added.

Income Tax Withholding: The Illinois Income Tax rate for individuals has increased from 3.75% to 4.95%, effective July 1, 2017.  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 Illinois Department of Revenue’s website).

 Estimated Tax Payments: For C corporations required to make estimated tax payments, the new rate of 7% will apply to income received on or after July 1, 2017. Estimated payments due September 15, 2017 and January 15, 2018 may need to be adjusted to reflect the higher rate.

Calculating 2017 Income: In figuring the tax for 2017, taxpayers will be permitted to use a blended rate based on the number of days in the tax year before the rate change and the number of days in the tax year after the rate change. Alternatively, taxpayers may use a specific accounting that treats their net income and modifications as though they were received in two different periods (pre and post July 1, 2017) and calculate the income tax due at the appropriate rate for each period.   Please send us a copy of your 6/30/17 financials, so we will be able to properly advise you of which method will provide the lowest Illinois tax for this year.

R&D Credit: The research and development credit is retroactively extended to tax years ending prior to January 1, 2022. This now allows taxpayers to claim the credit for 2016.

Domestic Production Activities (IRC Section 199): The qualified domestic production activities deduction taken on the federal tax return will now be required to be added back to income for Illinois beginning with tax years ending on or after December 31, 2017.