IL Graduated Income Tax Proposal Raises Business Taxes

Governor JB Pritzker publicly unveiled his graduated income tax proposal that will increase the corporate income tax by 13.5 percent while spiking the tax rate for many small businesses by 60.6 percent. Pritzker’s office estimates the tax scheme will generate $3.4 billion.

If enacted, Illinois will have the 3rd highest corporate tax rate (10.45 percent) in the United States, trailing only Iowa (12 percent) and New Jersey (11.5 percent). However, Iowa’s top rate is scheduled to drop to 9.8 percent in 2021.

Under the tax proposal, corporate tax rates will be 10.45 percent (7.95 percent plus the 2.5 percent corporate personal property replacement tax) while many small businesses will pay a rate of 9.45 percent (7.95 percent plus 1.5 percent corporate personal property replacement tax).

Illinois’ top individual tax rate would be the 8th highest nationally.

More than 75 percent of Illinois businesses file taxes under the individual income tax rate such as Subchapter S corporations, partnerships, and LLCs. The Governor’s proposed rates are as follows:

Income                                   Tax Rate

$0 – $10,000                          4.75 percent

$10,001 – $100,000               4.90 percent

$100,001 – $250,000             4.95 percent

$250,001 – $500,000             7.75 percent

$500,001 – $1,000,000          7.85 percent

$1,000,001 or more               7.95 percent *

Once income reaches $1 million, the entire income is taxed at the 7.95 percent. Employers with more than $1 million will see the entire amount taxed at the maximum rate plus the CPPRT.

Manufacturer A (Subchapter S) that has $2 million in income will see the tax bill increase from $129,000 to $189,000.

Manufacturer B (C Corporation) with $5 million in income will see the tax bill jump from $475,000 to $522,500.

Manufacturer C (Subchapter S) with $300,000 in income will have its income tax bill increase from $14,850 to $16,185, an increase of 9 percent.

Leave a Reply

Your email address will not be published.