Illinois Approves Sharp Income Tax Increase, Fourth-Highest Corporate Tax Rate
Early on January 12, 2011, the Illinois Legislature narrowly passed a bill that significantly raises individual income and corporate income taxes. Under the plan, Illinois’s one-rate individual income tax will rise from 3% to 5%, a 67 percent increase. The corporate income tax will rise from 7.3% to 9.5%, a 30 percent increase, becoming the fourth-highest state corporate income tax in the United States, and the fourth-highest combined national-local corporate income tax in the industrialized world. Two additional provisions include a reinstatement of the estate tax at the 2001 level and a temporary suspension of the net operating losses (NOLs) associated with the corporate tax.
The tax increases are projected to raise approximately $6.5 billion per year, and be coupled with additional borrowing. Illinois has accumulated billions of dollars in unpaid bills and officials have made little progress compared to other states in producing a structurally balanced budget.
The income tax increase will be retroactive to January 1, 2011. After four years, the individual income tax will decrease to 3.75%. Then in 2025, the individual income tax rate will drop to 3.5%. The corporate tax will follow a similar schedule of rate decreases: in four years the rate will be 7.75% and then in 2025 it will go back to the current rate of 7.3%.