It has been over two years since Illinois passed a budget. On July 6, Illinois lawmakers enacted Senate Bill 9 (SB9), overriding a veto by Governor Bruce Rauner.
Here are some of the provisions of the new Illinois budget that may affect you:
Income tax rates Individuals, trusts and estates now pay an amount equal to 4.95 percent. This is an increase from the previous tax rate of 3.75 percent. The corporate tax rate rose from 5.25 percent to 7 percent. These new rates are effective as of July 1, 2017.
Research and Development Tax Credit The Research and Development Tax Credit is reinstated for 2016 and extends through January 1, 2022. The credit was previously eliminated as of January 1, 2016.
Educational Expense Credit The Educational Expense Credit will increase from $400 to $750 beginning on January 1, 2018. However, the credit now excludes taxpayers with an adjusted gross income exceeding $500,000 for married filing joint, and $250,000 for all other taxpayers.
Graphic arts sales tax exemption The graphic arts sales tax exemption is permanent and now part of the manufacturing machinery and equipment exemption. It is effective July 1, 2017.
Phase-out of the additional personal exemption and property tax credit Beginning January 1, 2017, there is a phase-out for the additional personal income tax exemption for certain individuals aged 65 or older, or blind. Married filing joint taxpayers with an adjusted gross income exceeding $500,000 and all other taxpayers with an adjusted gross income exceeding $250,000 are no longer eligible for the additional personal exemption. The tax credit for residential real property is also eliminated for these same high-income taxpayers.
Decoupling of Domestic Production Deduction The Domestic Production Deduction under Federal IRC Section 199 is no longer allowed for state income tax purposes.
Expansion of the definition of “unitary business” The separate combination reporting for certain industries is eliminated.
Other provisions The legislation also raises the state earned income tax credit from 10 percent of the federal level to 18 percent over the next two years. Separately, the budget expects to realize $220 million from the sale of the Thompson Center, although the certainty of the sale figure is in question due to a zoning dispute with the City of Chicago.
With the new budget, the state will contribute an additional $215 million to Chicago teacher pensions. In addition, the Chicago Public Schools and other districts with large populations of poor students will receive more funding to cover rising school expenditures. However, the budget does not state how the schools will receive the funding.
Reducing the debt and junk bond rating Threatened by a junk bond rating from Moody’s Investors Service, the Illinois legislature passed the budget to reduce Illinois’ debt. It is still unclear if the new budget will prevent Illinois from having its rating reduced, as the new budget did not address the $251 billion in pension liabilities. Under the newly passed budget, Illinois is expected to raise roughly $5 billion in additional revenue annually and reduce its spending by more than $2 billion. The budget imposes a 5 percent reduction on the operations of most state government departments. Furthermore, the budget imposes a 10 percent cut on colleges and universities.
