Nearly two weeks ago, the Illinois legislature passed their first budget in three years. The most significant changes affect the income tax rate here in the state. The income tax rate for individuals, trusts, and estates increases from 3.75 percent to 4.95 percent (from 5.25 to 7.0 percent for corporations). For 2017 calendar year filers, the tax is calculated based on the 3.75 percent rate for the period prior to July 1, 2017, and 4.95 percent for the period after June 30, 2017. Taxpayers can select one of the following methods to figure the total tax due:
Method 1: Apportionment method (blended rate)
The default method for computing tax for calendar year taxpayers and fiscal year taxpayers with a tax year beginning before July 1, 2017, is based on allocating total taxable income by a ratio of the number of days before July 1, 2017, divided by the total number of days in the tax year, in order to determine the amount of taxable income subject to the old tax rate. Similarly, total taxable income is allocated by a ratio based on the number of days after June 30, 2017, divided by the total number of days in the tax year, in order to determine the amount of taxable income subject to the new tax rate. No separate schedule is required under this method.
Method 2: Specific Accounting Method
Alternatively, an election can be made to treat net income or loss and modifications as though it were received in two different taxable years. Tax is computed for each period and added together. This computation is reflected on new Schedule SA which will be required for taxpayers electing this method.
Electing either method is considered irrevocable.
In addition, any required estimated tax payments made on or after July 1, 2017, will be computed at the higher tax rate for both individuals and corporations. As a reminder, the personal exemption, education expense credit and real estate tax credit have all been modified. These three tax benefits are eliminated in 2017 for single filers earning more than $250,000 per year and joint filers earning more than $500,000 per year.
New Credit for Instructional Materials and Supplies
For tax years beginning on or after January 1, 2017, a credit is allowed equal to the amount paid during the taxable year for instructional materials and supplies with respect to classroom-based instruction in a qualified school, or $250, whichever is less, provided that the taxpayer is a teacher, instructor, counselor, principal, or aide in a qualified school for at least 900 hours during a school year.
If you have questions or need clarification on how to apply these recent changes, please contact us.