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Friday’s Financial Update 7-7-2017

by Steve Smalenberger / July 7, 2017

STEPHEN SMALENBERGER, EA

The State of Illinois has been operating without a budget for over two years… 736 days to be exact.  That all changed yesterday as the members of the Illinois House of Representatives passed into law the largest permanent tax rate increase in state history.  This came only after successfully overriding Governor Bruce Rauner’s July 4th veto.

The budget package will now become law, retroactively effective to July 1st.

As a result, both the Individual and Business income tax rate will experience permanent increases:

  • Individual Personal Income Tax Rate will go from 3.75% to 4.95%
  • Business Income Tax Rate will go from 5.25% to 7.00%

These are 32% and 33% increases, respectively!

For example, an individual or business earning $100,000 of income would experience the following:

Tax Rate Difference

(The example above reflects the tax impact of a full year of income being subject to the new rate)

What has the Illinois Income Tax Rate been in the past?  When have we experienced increases in the past?

According to research done by the Chicago Tribune, it has been anywhere between 2.50%, 2.75% and 3.00% for much of the last four decades.  As of 2011, the rate was as high as 5.00%.

Illinois Income Tax Rate

Tax Rate over last 50 years

http://www.chicagotribune.com/news/ct-illinois-income-tax-hike-2017-htmlstory.html

To put this into context, Illinois did not and still does not have the highest rate in the country.  However, it is also not the lowest.

Tax Rate by State

When you start considering property tax and sales tax rates, other states may start to look appealing for more than just vacation destinations.  However, before you list the house and start boxing up all your belongings… stop and consider that Illinois does not tax retirement income.

That’s right.  According to current Illinois law, distributions from 401(k)s, 403(b)s, IRAs, Pensions and Social Security Benefits are actually “subtractions” on the Illinois Tax Return which starts with your Federal Adjusted Gross Income.

Tax Subtractions in Illinois

This is a huge benefit it has over many of the neighboring states.

Now, there are a handful of states that have no personal income tax all together and those are:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

If you are considering changing your state residency, more importantly your domicile, please do not make this decision lightly.  As with any important decision, it shouldn’t be made emotionally but instead with a carefully designed plan.

If we can help you evaluate your options, please let us know!

Ready to find out more?

Contact us today for a free 30-minute consultation!

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Steve Smalenberger

Steve enjoys getting to know clients and hear their unique stories and the lessons learned which has brought them where they are today. One of the reasons he enjoys what he does is the ability to show the outcome that can be achieved with different choices. He also enjoys continually learning.