Illinois State Income Tax: Key Insights and Filing Tips 2024

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Illinois, or the Prairie State, offers a mix of rural and urban landscapes, as well as a rich history. Nature lovers can explore the state — while businesses and individual contributors can take advantage of its bustling financial activities.

However, an essential part of these economic exchanges surrounds its state income tax system.

For the year 2024, Illinois has made several adjustments that must be accurately noted for error-free filing.

Particularly significant are the changes to the tax brackets and deductions which may affect a taxpayer's final obligation to the state. Understanding these updates is essential for tax planning and time-efficient filing.

In this article, we present some key insights into the Illinois state income tax system's fundamental aspects and mention useful tips to achieve smoother, less stressful filing.

Illinois Income Tax Rate

Illinois has a flat income tax rate of 4.95% without any higher tax brackets for those who earn greater incomes. Taxpayers were required to submit their 2022 state income taxes on or before April 18, 2023. And the rate remains the same for 2024.

Those needing extra time can request a 6-month extension, but must still pay any taxes owed by the original filing deadline to avoid potential penalties.

Illinois has a flat tax rate system, unlike the progressive system of the federal government. Despite this complication, taxpayers can still reduce their liability. Strategic use of deductions and credits can lead to substantial tax savings when done correctly.

For example: If you make $50,000 annually in Illinois, you can expect to owe $2,475 in state taxes with a uniform 4.95% rate. However, if you are able to deduct $5,000 from your 401k contributions and $2,000 from property taxes, your taxable income will be reduced to $43,000 and your state taxes to $2,128.50, yielding you great savings.

Illinois State Income Tax Deductions and Credits

Here are some key tax reduction programs in Illinois and the qualification criteria.

Illinois Earned Income Tax Credit (EITC)

The Illinois Earned Income Tax Credit (EITC) is the same as the federal earned income tax credit for those with low-to-moderate incomes. This refundable tax credit means it can lower your tax bill dollar-for-dollar and even give you a refund.

In Illinois, the Earned Income Tax Credit (EITC) is closely linked to the federal EITC. If you are eligible for the federal EITC, you are likely eligible for the Illinois credit. The amount of the credit is determined by your eligibility for the federal EITC.

For tax years 2022 and earlier (filed by April 2023), the Illinois Earned Income Tax Credit is 18% of the federal credit amount. For tax years 2023 and beyond (filed in 2024), the Illinois EITC rises to 20%.<
To find out if you qualify for benefits, check the IRS' eligibility criteria. You must have had income below $59,187 and worked during the tax year.

Changes Made to the Form IL-1040, Illinois Individual Income Tax Return, and schedules?

  1. The personal exemption for 2022 is $2,425.
  2. The 2022 Form IL-1040 and any associated taxes must be filed and paid by April 18, 2023. If desired, you may extend the due date to October 16, 2023.
  3. Estimate payments for 2023 can be made in four equal installments based on either 90% of the expected liability or 100% of the liability for 2022. All payments must be made on time to avoid penalties.
  4. Public Act 102-0799 added a checkbox to Form IL-1040, allowing the Illinois Department of Revenue (IDOR) to share your contact and income data with the state health benefits exchange and to provide you with health insurance eligibility information.
  5. The 100 Club of Illinois Charities is now an option for charitable donations on Schedule G. This means that you now have the option to donate a portion of your return to help families of police, fire personnel, and other emergency responders.
  6. Instructions for taxpayers who received a discharge of indebtedness from student loan forgiveness in 2021 and 2022, which is not excluded from federal adjusted gross income as per Public Act 102-1112, are included in an Addendum to the IL-1040 and Schedule M Instructions.

Illinois K-12 education expense credit

Illinois' K-12 education expense credit is an avenue for parents to ease the financial burden of their children's education. The credit is available for education expenses associated with grades kindergarten through 12. These include books and supplies, registration fees, tuition for private schools (secular or religious), and extra-curricular courses.

  1. The Illinois K-12 Education Expense Credit can reduce your tax bill by up to $750 if you spend more than $250 on tuition, book rentals, and lab fees for qualified programs.
  2. Daycare, preschool, and college costs do not qualify. Some materials and equipment, such as musical instruments, might not be accepted if they are not used up during the school year.
  3. The credit is not available to taxpayers whose federal adjusted gross income exceeds $250,000 ($500,000 for married couples filing jointly).

For example, if you spent $2000 on qualified K-12 educational expenses, 25% of the expenses over $250 equals $437.50. This is the credit you would receive.

Tax Deduction and Exemptions

Tax deductions

Be it educational expenses, mortgage interest, or charitable donations, tax deductions help you decrease your taxable income.

Instead of itemized deductions or standard deductions, Illinois offers deductions you can subtract from your taxable income. These include contributions to college savings accounts, ABLE accounts (savings plans for people with disabilities), and income from tax-exempt bonds issued by the state or local Illinois governments.

Exemptions

Illinois allows taxpayers to exempt up to $4,850 (for married couples filing jointly) or $2,425 (for single filers) from their taxable income in 2023.

The exemption allowance is different from the standard deduction: you can take it even if you have other subtractions from your income. The standard deduction, on the other hand, requires you to either take it or add up your itemized deductions and claim those instead.

Taxpayers who don't qualify for the full exemption (or any at all) include those who are claimed as a dependent and have their own income and those who have an adjusted gross income of more than $250,000 ($500,000 for married couples filing joint returns).

What Are the Changes to the 2022 Illinois Business Income Tax Returns and Schedules?

In this section, we will cover the recent modifications made to the 2022 Illinois Business Income Tax rules and schedules. Important updates include changes to deduction limits, new tax credits for certain sectors, and changes to tax filing requirements for small and medium-sized enterprises (SMEs).

  1. Partnerships and S corporations that elect to pay PTE tax must make estimated tax payments if they expect their total tax liability to exceed $500. Penalties for late estimated payments were waived for taxes due before December 31, 2022, but not for taxes after that date.
  2. The due date to file Form IL-1120 has been extended by seven months (eight months for June filers) from the original due date, one month longer than the federal automatic extension. This extended due date is retroactive for all tax years ending December 31, 2021, or later.
  3. Schedules B and D for partnerships, S corporations, and fiduciaries have been changed from horizontal to vertical orientation, providing space for new PTE tax lines.
  4. Form IL-1041, Fiduciary Income, and Replacement Tax Return, now includes a checkbox to allow estates with no distributions to identify themselves.
  5. Form IL-4562 was updated to include calculations for property placed in service between 12/31/2022 and 01/01/2024, with 80% of the cost eligible for federal bonus depreciation.
  6. For tax years ending December 31, 2022, or later, you must include Schedule NLD, Illinois Net Loss Deduction, or Schedule UB/NLD, Unitary Illinois Net Loss Deduction, with your business return.
  7. Schedule 4255 of the Recapture of Investment Tax Credits now includes lines for recapturing the Reimagining Electric Vehicles (REV) Illinois Investment Credit.
  8. IL-2220, the calculation of penalties for businesses, was revised to include a new worksheet for filers of IL-1065 and IL-1120-ST Forms who opt to pay PTE tax and spread out their income across the year.

Tips for Illinois Individual Income Tax Filing

  1. Check Where's My Refund? to see if the Illinois Department of Revenue has started processing your refund. For more details, use the Illinois Comptroller's Find Your Illinois Tax Refund System.
  2. To qualify for the Illinois Earned Income Credit, file a tax return, even if you do not owe tax or have no filing requirements. For more info, visit the Illinois EITC & EIC web page.
  3. MyTax Illinois — their electronic account management — has been updated to simplify filing your 2022 IL-1040. You can file with or without an account; automated calculations and pre-populated information from prior returns decrease errors; report wages/salaries, retirement, Illinois income tax overpayment, and military pay; claim Earned Income, Property Tax, K-12 Education Expenses, Withholding, and Estimated Payments credits/payments; pay tax electronically or quickly receive refunds with direct deposit; and get immediate confirmation after submitting. Check mytax.illinois.gov to see if you qualify for this easier process.
  4. With a MyTax Illinois account, you can quickly respond to most income tax correspondence from IDOR. Log in, click the "more account options" tab, then select "respond to notice" in the Letters and Messages section.
  5. The Illinois exemption allowance, Illinois Property Tax Credit, and K-12 Education Expense Credit are not valid if an individual's adjusted gross income, as determined by their federal filing status, exceeds $500,000 for married filing jointly, or $250,000 for all other returns.

How To Avoid Common Mistakes While Filing Illinois Taxes

Here are some common areas to watch out for when preparing your Illinois tax returns:

Ensure income is correctly reported

Forgetting to report throwable income — including earned wages, interest and dividends, and unemployment compensation — is a common error. Double-check to ensure all income is covered in your returns, to prevent delays in processing or audit triggers.

Confirm the correct filing status

What is your filing status? Make sure you are not mistakenly filing as “single” if you should be filing as “married filing jointly” or as a “head of household.” Each filing status has different reporting and deduction amounts. An incorrect filing status will disqualify you for some deductions or credits and can impact your tax bill.

Include all allowable credits

Each credit you are eligible for can reduce the amount of state tax you owe and should not be overlooked. These include the Earned Income Credit, Illinois Property Tax Credit, and Education Expense Credit, among others.

Keep track of non-resident income

If you have moved out of Illinois during the tax year or have income from other states, it's necessary to apportion your income correctly on Form IL-1040-NR, Nonresident and Part-Year Resident Computation of Illinois Tax. Remember to file a non-resident return if you've earned Illinois-source income.

Remember estimated tax payments

If you've made estimated tax payments throughout the year, remember to include these on your return. Failing to account for all payments may result in you owing more tax than necessary or foregoing funds that should be refunded to you.

How Long Does It Take for an Illinois State Tax Refund To Be Processed in 2024?

15 weeks is the average timeline for electronic returns if there are no errors, and direct deposit is chosen for receiving the refund. However, paper returns generally require 8-10 weeks for processing.

  1. Submitting your return at the beginning of tax filing season and choosing e-filing can speed up your refund duration. It is slower to process refunds as the season progresses, with considerable delays during the last two weeks before the filing deadline.
  2. Direct deposit is quicker than receiving a check in the mail. Eligible individuals must include their bank account number and routing information for receiving direct deposit while filing.
  3. Choose email notifications to get updates on the status of your return and refund directly. Notifications will be sent about pre-approval, approval of refund (including expected credit date), and any rectifications or required actions to be taken.
  4. Before filing, ensure every item in your return is error-free, accurately typed in, and all necessary supporting documents are attached. Errors or inadequate information can cause extended delays in receiving your refund. Monitor the Where's My Refund portal periodically to keep track of your refund status.

What To Look for in 2024?

Individual income tax

  1. Starting in 2023, individuals will receive an increased personal exemption allowance of $2,625 on their Form IL-1040, including estimated payments. Employers should refer to the IL-700-T Illinois Withholding Tax Tables Booklet for updated withholding income tax rates.
  2. Beginning in 2023, Illinois' Earned Income Tax Credit (EIC) increases to 20% of the federal amount, and will now include individuals ages 18-25 and 65+, and those filing with an ITIN. Also, the Instructional Materials and Supplies Credit will be increased to $500. To stay informed, please check tax.illinois.gov.

What Forms Are Needed To File Taxes in Illinois?

To file taxes in Illinois, you will require the following documents:

Form IL-1040

This is the Illinois Individual Income Tax Return. It is the fundamental state income tax form, and it must be filled out and filed by all Illinois taxpayers.

Schedule IL-WIT

If you've had Illinois Income Tax withheld during the year, you'll need to fill out and attach this schedule to Form IL-1040.

Schedule IL-E/EIC

Individuals claiming the Illinois Earned Income Credit should complete this schedule and attach it to Form IL-1040.

Schedule IL-1040-NR

If you are a nonresident or part-year resident, you'll need to fill out and attach the IL-1040-NR Schedule. This form is necessary to calculate the proportion of your total income earned while living in, or earned from the sources of, Illinois.

Schedule IL-505-I

Applicable for individuals who expect to owe tax in excess of $500, fill out Schedule IL-505-I to compute your required annual payment and pay minimal required estimated installments.

Schedule ICR

Detailed record of the Illinois Credits including the Property Tax Credit and K-12 Education Expense Credit, among others.

How can you seek help with Illinois tax filing?

There are a few sources that can provide legitimate answers to your tax questions:

The Illinois Department of Revenue website

The Illinois DoR's website has downloadable forms, instructions, FAQs, and even a place to check the status of your refund.

Tax professionals

It can be expensive but getting professional help will ensure that you minimize errors in your tax returns. Tax professionals are acquainted with the most recent tax law modifications and will optimize your refunds and deductions.

Authorized e-file providers

Using authorized e-file software can be a simple, swift, and safe way to file your taxes, and often includes walkthrough guidance and calculation mechanisms.

Taxpayer assistance centers

The Illinois Department of Revenue operates various local offices where you can get helpful guidance about your tax concerns – from answers to specific inquiries to assistance in form preparation.

Tax counseling for the elderly (TCE)

The TCE offers free tax help to all taxpayers, particularly those who are 60 years of age and older. They specialize in addressing questions about pensions and retirement-related concerns unique to seniors.

VITA (Volunteer Income Tax Assistance) program

Individuals who earn $57,000 or lower, persons with disabilities, and limited English-speaking taxpayers who need help in preparing their tax returns are eligible for the VITA program. IRS-certified volunteers provide free basic tax return appliances, notably about specific tax credits to which they might be entitled, such as Earned Income Tax Credit, Child Tax Credit, and Credit for the Elderly or the Disabled.

Telefile

Finally, another option for convenience is the Telefile service, which allows taxpayers to file returns over the telephone for free. It's convenient for most individual filing routines and also allows payment of tax balance due straight from individual bank accounts.

It's essential to remember, when you are using any paid services for your tax return preparation, to ensure they have an updated Preparer Tax Identification Number (PTIN) and credible reviews.

Frequently Asked Questions About Tax Filing in Illinois

When do I need to file my state taxes in Illinois?

April 15th is the deadline for filing personal income taxes. Filing early, however, will expedite your refund if you're expecting one.

The government grants a six-month extension of time to file returns. If a federal extension of more than six months is granted, the same extension applies to Illinois.

What happens if you file Illinois state taxes late?

If the return or report is filed more than 30 days after the due date, the penalty is 5% of the tax due or $100, whichever is higher. The penalty cannot exceed 30% of the tax due or $2500, whichever is greater.

What deductions and credits can I claim on my Illinois state tax return?

Several deductions and tax relief schemes are available to Illinois taxpayers. Some significant ones include the Illinois property tax credit, the Illinois earned income credit, the K-12 Education Expenses Credit, and the Credit for Illinois Estate Tax Paid.

Can I file my state and federal taxes together?

Yes, your federal and state tax returns are different and have to be filed separately, though many tax-preparation softwares and e-file service providers can permit you to file both at the same time. Your federal tax return information is the basis of your state return.

Who qualifies for income tax relief in Illinois?

Illinois offers an Earned Income Tax Credit (EITC), which puts money directly into the pockets of low-income working families and individuals. Also, senior citizens aged 65 and older, disabled people, or widowed spouses aged 59 on real property are eligible for a property tax exemption equivalent to the increase in the present year’s equalized assessed value (EAV) over the first year for which you got awards. A household with a Federal AGI of USD 65,000 or less annually is qualified for an affordable housing tax credit too.