Each state has slightly different tax laws for individuals, so we will cover some of the most important basics of Illinois state tax law here to give you a better understanding of your tax return, and tax savings you might be missing out on!
Side note: your tax refund may take a little longer to process this year compared to previous years because additional steps are being taken to protect individuals from identity theft. Filing electronically and utilizing direct deposit is still a safe route and the quickest way to receive it.
Illinois charges a flat income tax rate, which means no matter what your income is, everyone pays the same percentage, which makes it easier to determine what you’ll need to have when tax season rolls around. In 2015 the IL income tax rate was reduced to 3.75%. Exemptions have been increased to $2,175 and these are claimed on your Form 1040 – they reduce your taxable income, and you can take one for yourself, your spouse, and each qualified dependent (eg. kids). For more info and updates see tax.illinois.gov.
The implementation of the progressive tax system, used by the majority of the country currently, was being voted on as of November 2016, and if put into place will be valid for the 2017 tax year
Illinois has the second highest property tax rates in the country, with a state average of 2.13%, which is almost double the national average. Learn how to apply for a property tax refund for those who may have overpaid or double-paid.
Itemized and standard deductions are not allowed in this state, which goes along with the simplified flat tax reasoning currently in place. However, there is a list of “additions” and “subtractions” which are listed on the Schedule M Form and some examples include:
- Your child’s federally tax-exempt interest and dividend income (reported on Form 8814)
- Distributive share of additions received from a partnership, S corp, trust, or estate
- Earnings from particular college savings and tuition programs if not included in your adjusted gross income
- Deductions for contributions to Illinois college savings plans transferred to an out-of-state plan
- See more here
- Contributions to specific college savings plans – “Bring Start”, “College Illinois” and “Bright Directions”
- Distributive share of subtractions from a partnership, S corp, trust, or estate
- Contributions to a job training project
- Expenses for federal credits or federally tax-exempt income
- Interested on investments through “Home Ownership Made Easy Program”
- Earned military pay
- Treasury bonds, bills notes, savings bonds
- Payment of life insurance, endowment, or annuity benefits received
- Interest on tax exempt obligations of Illinois state and local government listed here
- Interest on certain non-US government bonds
- See more here
This is a federal tax deduction, however, an interesting fact is less than 30% of Illinois residents in 2010 claimed this deduction, and it saved those people on average nearly $10,000! Definitely don’t miss out on this one!
Not Part of Your Tax Return (but interesting to know)
Illinois Sales Tax
IL sales tax is 6.25%, but there is also a separate county, city, and district tax in many areas. Click here to see a representative table
Illinois Gas Tax
There is a federal tax of 18.4 cents/gallon of gasoline, 24.4 cents/gallon of diesel, and an Illinois state tax of 33.45 cents/gallon for gasoline and 34.57 cents/gallon for diesel.