No one likes when tax increases hit home and impact our personal finances. Unfortunately, in a controversial move, the Illinois state legislature has overridden a veto by Governor Bruce Rauner and increased the personal income tax from 3.75% to 4.95%. This is intended to increase tax revenues by $5 billion to address the state’s enormous budget deficit.
For an individual who makes $100,000 per year, the state income tax used to be $3,750. Under the tax increase, this will increase to $4,950, an increase of $1,200 per year. For an income of $200,000 a taxpayer would pay an additional $2,400 per year. While the increase makes a definite financial difference for everyone, the impact of the tax increase will have a significant and pronounced difference for higher income taxpayers.
For an individual who makes $250,000 or a married couple with a joint $500,000, these taxpayers will see a $3,000 and $6,000, respectively. But it does not end there. For taxpayers in these income brackets, the tax increase also comes with significant losses in the loss of the following tax credits: (1) the Illinois property tax credit; (2) personal exemption allowances; and (3) private education tax credits. The value of each of these credits varies from family to family, especially the property tax credit; and in their totality, may result in a significantly higher tax obligation for high earning Illinois taxpayers.
With these new tax increases in mind, I would recommend considering the following steps to address the personal impact on your finances.
- If you are on the brink of $250,000 as an individual or $500,000 as a couple in income, be wary of any financial decisions that will put you over the top and push you into those brackets, such as selling stock or real estate.
- Consider putting money into education savings plans or into retirement accounts. This can serve the purpose of lowering your tax base, while also saving for your future and your children’s educations.
- Speak with a Tax Attorney. A knowledgeable tax attorney can navigate new state tax laws, as well as IRS tax laws, to advise you about wise and legal tax and financial planning.
Call an Experienced Family Attorney
The Law Offices of Robert S. Thomas has provided tax advice and guidance to Illinois residents for over twenty years. With a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court, I have the knowledge and experience to tackle any tax dispute. If you need tax assistance, call me. Contact the Law Offices of Robert S. Thomas at 847-392-5893 for to schedule a consultation or visit our website today.