The state of Illinois has legislated higher tax rates on personal and corporate income, taking effect this year 2011 through 2025.
The personal tax rate in the Prairie State increases from 3% (in 2010) to 5%. The corporate tax rate increases from 7.3% to 9.5%. Illinois is one of seven states with a flat tax, so the 5% personal rate will apply to all Illinois residents and nonresidents with Illinois-source income.
The tax rate increase will gradually taper off. The personal tax rate is scheduled to decrease to 3.75% in 2015 and then decrease again to 3.5% in 2025. Similarly, the corporate rate will fall to 7.75% in 2015 and then reset to the original 7.3% rate in 2025.
The Illinois Department of Revenue has advised employers that the new 5% withholding rate on payroll and other income goes into effect immediately. The DOR has advised that employees may, at their sole discretion, request that employers withhold extra amounts to catch up for pay periods during which a lower rate of withholding was applied.