Illinois Taxpayers to Vote on Graduated Tax Structure

 Illinois has enacted legislation that will allow taxpayers to vote on a constitutional amendment implementing a graduated income tax, among other changes.  See S.B. 687.  The measure will be on the ballot in November of 2020.

Illinois currently levies income tax at a flat rate of 4.95%.  It is one of only nine states using a flat income tax rate.  Under the proposed tax schedule, the rate would be reduced to 4.75% for income up to $10,000 and 4.9% between $10,000 and $100,000.  It would remain at 4.95% for income between $100,000 and $250,000 but increase significantly for incomes above that figure; 7.75% between $250,000 and $350,000, and 7.85% between $350,000 and $750,000.  Taxpayers with income above $750,000 would pay 7.99% on their entire income.  For joint filers, the 7.75% rate would apply up to $500,000, and the 7.85% rate would apply between $500,000 and $1 million.  The 7.99% rate would apply to all income if income is above $1 million.

Analysis of the structure indicates that it would generate an additional $3.4 billion in new revenue for the financially strapped state, while reducing taxes on lower- and middle-income taxpayers.  Supporters note that Illinois taxpayers making $1.5 million per year currently pay less tax than equally situated taxpayers in all but eight states.  Under the proposal, they would move from 9th lowest to 35th lowest among the 41 states with an income tax.  On the other end of the scale, people making $60,000 currently pay more in Illinois than in 24 other states with an income tax.

However, some observers have suggested there may be legal problems associated with taxing some taxpayers at a graduated rate and others (those with very high incomes) at a flat rate.  No other state has such a formula.

The proposal would also include a tax credit of $100 per child under the age of 17, and an increase from 5% to 6% in the credit for real property taxes paid on a principal residence.

The changes, if approved by voters, would take effect for the 2021 tax year. 

It is expected that the proposal will be a major issue in the November 2020 elections in Illinois.

How This Impacts Mobility

If the graduated tax and other items are approved, it will affect gross ups in Illinois.  Some will decrease, but many will increase.

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