As you are likely aware, the Illinois House overturned Governor Rauner’s veto on Thursday and the state finally has a budget. Nearly three years in the making, this budget fails to rectify Illinois’ $15 billion debt nor does it address the $130 billion shortfall in government worker pensions, but it’s a start. So what does this mean for your business and your wallet?
Some of the most significant changes are outlined below. Most importantly to note, these changes are effective July 1, 2017, so payroll this week will account for the new income tax rate.
- The Illinois income tax rate for individuals increased from 3.75% to 4.95%. The Corporate income tax rate increased from 5.25% to 7%. It is important to note that there will be a blended income tax rate during 2017. A blended rate means that the effective tax rate for individuals for 2017 will be 4.35%. If you received a large bonus or capital gain prior to July 1st, please give us a call to discuss planning issues.
- Illinois has also eliminated the federal domestic production activities deduction (DPAD) under IRC Section 199. This will require a revision to your estimated tax payments, please give us a call to discuss if this applies to you.
- The tax credit for residential real property will be eliminated for the taxable years on or after January 1, 2017 for certain taxpayers. Taxpayers may not claim a credit if their AGI for the taxable year exceeds $500,000 for spouses filing jointly or $250,000 for all other taxpayers.
- The tax incentives for gasohol will end on July 1, 2017 instead of December 31, 2018.
Tax Credits & Exemptions
- The exemption for machinery and equipment used for graphic arts will be reinstated under the manufacturing exemption. This exemption originally ended on August 30, 2014.
- The “R&D” (research and development) credit will be reinstated and extended through January 1, 2022. The credit originally expired as of January 1, 2016, but will now apply continuously for all tax years ending on or after December 31, 2004 until January 1, 2022. Please contact us if you are interested in filing an amended return to take advantage of this credit for the 2016 tax year.
- The sales tax discount for blended ethanol and biodiesel fuels will be extended to all sales made on or before December 31, 2023. This discount previously expired December 31, 2018.
Illinois’ $36 billion spending plan relies on a $5 billion tax increase derived from the income tax hike and other changes. The new budget will continue to have a variety of implications on taxpayers. If you have questions pertaining to how these changes affect you or your business please contact Weiss & Company LLP to speak to one of our tax accountants.