Illinois is one of the few states that have a flat tax system in which everyone pays the same tax rate regardless of income. Illinois tax code is based heavily on the federal tax code. This combined with the flat tax philosophy of simplifiying taxation, makes Illinois tax returns much less complicated than other states.
Calculating Your Illinois Taxable Income
The starting point for your Illinois return is your federal adjusted gross income (AGI). AGI is found on Line 37 of your Federal Form 1040 and is equivalent to your income after adjustments such as student loan interest, IRA contributions, and moving expenses, but before itemized or standard deductions.
On your Illinois return, certain types of income is added back to your AGI and other types of income is subtracted, resulting in your Illinois “base income.”
Add backs are items that are not included in your federal AGI, but are taxable in Illinois, such as federally exempt interest income.
Subtractions are items that are taxed federally, but are not taxed in Illinois such as retirement and Social Security income, and contributions to a 529 college savings plan. (one reason Illinois is one of the best states for college savers). For a full list of additions and subtractions see Illinois Schedule M.
Consistent with the flat tax ideology of simplification and fairness, itemized and standard deductions are not allowed. However, you are allowed exemptions for dependents that reduce your income as well as tax credits that reduce the amount of tax you owe.
On your Illinois return, you receive a deduction of $2,000 for each exemption you claimed on your federal return. You can also receive an additional $1,000 exemption if you or your spouse is 65 or older, legally blind, or both.
The total exemption amount is deducted from base income to arrive at “net income.” The tax rate is then applied against net income.
Illinois Tax Rate
Every individual receiving income in Illinois has to pay Illinois income tax, residents and non-residents alike. For tax years ending on or before December 31, 2010, the tax rate in Illinois is 3% of net income.
After January 1, 2011, the tax rate increases to 5%.
Illinois Tax Credits
A credit is available for income taxes paid to another state as well as these credits:
Property tax credit: This credit is equal to the lesser of 5% of Illinois property tax paid or the remaining income tax due after subtracting the credit for taxes paid to another state.
K-12 expenses: If you spent money on supplies for your child’s school (or for your home-schooled child) you can deduct 25% of any expenses over $250. You must attach a receipt from your child’s school to your return (or personal expense receipts in the case of a home-schooled child). The credit is limited to $500.
Filing your Return
Form IL-1040, your Illinois individual income tax return, is due annually on April 15th.