So Why Do I Keep Hearing About Tax Cuts Or Tax Hikes If The Amendment Passes
Last year, Pritzker pushed lawmakers to adopt a new tax law that would only take effect if the constitutional amendment passes. The Democrats who hold lopsided majorities in both the House and Senate passed the law, which will take effect in January 2021 if voters approve the Fair Tax Amendment.
Illinois currently imposes a 4.95 percent personal income tax on everyone, regardless of income.
Under the new law, Illinois residents would pay a reduced rate of 4.75 percent for the first $10,000 they earn, 4.9 percent on any money they earn between $10,000 and $100,000 and the 4.95 percent on anything they earn between $100,000 and $250,000.
Beyond the first quarter million dollars, the rates jump significantly. The next bracket taxes people at 7.75 percent, up to $350,000 for people filing individually and up to $500,000 for those filing jointly. Beyond that, individuals pay 7.85 percent for income up to $750,000 and joint filers pay that rate for income up to $1 million.
Those tax rates apply to everyone below the highest tax bracket. So even if you make $749,000, the first $10,000 you earn would be taxed at 4.75 percent, not 7.85 percent.
In the highest bracket , though, the 7.99 percent rate applies to ALL of the taxpayerâs income, from the first dollar on up.
The law also contains other provisions, such as new tax credits for children and larger tax credits to offset property taxes.
How Would Illinois Have Compared To Other States
As of 2019, 43 states levied a tax on personal income. Of these 43 states, 11 states, including Illinois, had a flat income tax rate, meaning there is a constant rate across income before deductions and exemptions. In Illinois, income was taxed at a flat rate of 4.95%. The flat income tax rates ranged from 2.00% in Tennessee to 5.25% in North Carolina. Tennessee’s income tax was scheduled to be reduced to 1.00% in 2020 and to be repealed entirely in 2021.
Most states had a graduated income tax, with different rates applied to different levels of income. Under Illinois SB 687, the proposed tax rates would have ranged from 4.75% to 7.99%. Compared to 2019 tax rates, Illinois would have had the sixth-highest top-bracket rate. The state with the highest top-bracket rateâand the largest difference between the bottom and top ratesâwas California, where the bottom rate was 1.00% and the top rate was 13.30%.
Planning For Gifts And Bequests
As you look ahead, you may be thinking about giving some of your assets to family members or friends, which is often beneficial to both you and them as long as you can afford to live comfortably on your remaining retirement income.
Transferring wealth is often a good way to avoid incurring estate taxesand that’s in turn good because these taxes can take a larger bite of your assets than even the highest income tax rate. In addition, some states impose inheritance taxes at various rates on what your heirs receive from your estate.
But the good news is that prior to your death, you can make gifts to whomever you wishand you can do so up to a certain amount without paying taxes. The IRS ceiling for individuals and married taxpayers changes from time to time.
In addition, you can make larger gifts tax-free to your beneficiaries over the course of your lifetime. You have to follow IRS rules carefully to comply with the lifetime exclusion provisions. For more details, read the instructions for IRS Form 709.
There are pros and cons to making tax-free gifts. On the upside, giving the money away reduces your taxable estatethat is, what will be subject to estate taxes when you diewhile also helping your beneficiaries. But on the downside, once the gift is given, if you need access to that money later in your retirement, it’s gone.
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Illinois Retirees Would Pay $2482 In State Income Taxes If Fair Tax Targets Them
Members of Pritzkers administration, advisors and lawmakers have suggested a progressive income tax should tax retirement income in Illinois.
There are 2 million Illinoisans of retirement age, and currently the state does not tax their retirement income. But there is significant reason to believe the fair tax amendment to the Illinois Constitution would bring retirement taxes if passed.
If Illinois begins taxing retirement income under the proposed progressive income tax schedule, an Illinoisan earning the average Social Security and retirement income would pay $2,482 in income taxes.
Illinoisans on average receive $19,999 in annual Social Security benefits and $30,950 in retirement income from sources such as 401Ks or IRAs. That brings total retirement income to $50,949. Currently, none of that income is taxed.
However, a progressive income tax could mean that these retirees will eventually pay taxes. According to proposed progressive income tax rates already passed by state lawmakers, that would take $2,482 in taxes from the average retiree annually.
On Oct. 5, three Cook County retirees joined the Illinois Policy Institute in filing a lawsuit over the inaccurate language being presented to voters on the ballot. Among other things, the lawsuit points out that misleading statements mailed to all voters by the Illinois Secretary of State, will induce retirees into voting to impose on themselves a tax on retirement income.
Total Estimated 2021 Tax Burden
Our income tax calculator calculates your federal, state and local taxes based on several key inputs: your household income, location, filing status and number of personal exemptions. Also, we separately calculate the federal income taxes you will owe in the 2020 – 2021 filing season based on the Trump Tax Plan.
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States That Dont Tax Pensions 2021
Many hardworking citizens look forward to when they get to retire. After nearly a lifetime of work, many Americans get to finally cash in on their retirement plan, like a pension plan.
A pension plan is a type of retirement plan that is made up of contributions from the employer. In some cases, the employee may also contribute to the plan, and the employer can make these funds up to a set limit or certain percentage.
A pension plan assures a person that they will have an income following retirement. Unfortunately, though, in many states, pension funds can be taxed just like ordinary income.
Laws vary from state to state regarding how pensions are taxed. In some cases, at least a portion is taxed based on the amount of money in the plan and the retiree’s age. However, in other states, pensions aren’t taxed at all. Let’s take a look at the states that don’t tax pensions.
What Is The New Proposal
The Illinois Graduated Income Tax Amendment offers to change the tax structure from a flat tax system to a graduated system. This is the same structure that our Federal tax system uses, whereby a taxpayers marginal tax rate increases along with their earnings.
As you can see below, the effective tax rate for taxpayers who earn under $250,000 will decrease under the new proposal. For example, a single taxpayer making $50,000 annually would have their Illinois tax bill decrease by $40 per year. In contrast, an individual making $500,000 or $1,000,000 would incur an increase in their tax bill of $6,960 and $21,460 respectively.
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Do I Have To Pay State Taxes On Capital Gains
State Taxes on Capital Gainstaxes on capital gainstax capital gainstaxincomeyoustate income taxyouhavecapital gains taxesstateThere are a number of things you can do to minimize or even avoid capital gains taxes:
How Will This Impact What I Pay
Under the rates approved by legislators in 2019, Pritzkers proposed graduated income tax plan would lower the average tax rate for all taxpayers earning less than $250,000 annually, which amounts to 97% of Illinois wage earners.
The 3% of Illinois residents who earn over $250,000 annually will pay more in taxes under Pritzkers proposed plan.
Of the 3% who would see higher tax rates under Pritzkers plan, 85% live in Cook County and the five collar counties, which are home to about two-thirds of the states population.
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Are Capital Gains Taxed In Illinois
4.6/5Illinois income taxgainstaxedgainsIncomeIllinoistax capital gainsincomethoroughly answered
Additional State Capital Gains Tax Information for IllinoisThe Combined Rate accounts for Federal, State, and Local tax rate on capital gains income, the 3.8 percent Surtax on capital gains and the marginal effect of Pease Limitations .
does Illinois tax long term capital gains? The map and chart below depict the combined state& federal top marginal tax rate on capital gains.State Capital Gains Tax Rates.
Simply so, are capital gains subject to state taxes?
Long-term capital gains are also subject to state and local income taxes. Combined, taxpayers can expect to face a marginal rate as high as 33 percent depending on their state of residency. At the state level, taxes on investment income vary anywhere from 0 to 13.3 percent.
Which states do not tax capital gains?
- Alaska Department of Revenue: “No personal capital gains tax.
- Florida Department of Revenue: “There is currently no Florida income tax for individuals and, therefore, no Florida capital gains tax for individuals.
- Nevada Department of Taxation: “Nevada does NOT have a capital gains tax similar to federal income tax.”
Cost Of Illinois’ Retirement Income Tax Exemption
Unlike the federal government, the State of Illinois exempts all retirement income from the individual income tax. Of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income and one of 27 that exclude all federally taxed Social Security income, according to a report from the Chicago Metropolitan Agency for Planning.
The Illinois Comptroller estimates that this exemption of federally taxable retirement income reduced the States individual income tax revenues by $2.0 billion in FY2012. The cost of this exemption is expected to increase over time due to a population shift in Illinois. According to data available on the website of the Department of Commerce and Economic Opportunity, the number of senior citizens in Illinois is expected to grow considerably from 1.7 million in 2010 to 2.7 million by 2030.
The Comptrollers estimate of the States revenue losses due to the exemption is based only on federally taxable retirement income. The federal government provides some relief for lower income retirees by exempting Social Security benefits below a certain threshold. Individual senior citizens do not have to pay federal income taxes on their Social Security benefits if the sum of half of their Social Security benefits combined with all other income is less than $25,000 annually. For couples the threshold is $34,000.
All of the states regionally connected to Illinois tax some portion of retirement income, as described below:
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Overview Of Illinois Taxes
Illinois has a flat income tax that features a 4.95% rate. This means that no matter how much money you make, you pay that same rate. Sales and property taxes in Illinois are among the highest in the nation.
|Number of State Personal ExemptionsDismiss|
* These are the taxes owed for the 2021 – 2022 filing season.
Are Other Forms Of Retirement Income Taxable In Illinois
Just as Social Security income can be subtracted from total income, so too can other forms of retirement income. Deductions are allowed for all income from pensions, whether public or private, and income from retirement savings accounts. So, for example, if you withdraw $20,000 from an IRA over the course of a year, that money is not taxed at the state level.
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What Role Does Covid
State spending on COVID-19 relief has deepened Illinoiss preexisting budget strain. Pritzker projected a $2.7 billion shortfall for the budget year that ended on June 30 with a $6.2 billion hole for the new budget year that began July 1.
At an April news conference, the governor stressed that the Illinois Fair Tax is needed now more than ever to alleviate the working and middle classes, provide public services and deal with new budget hits throughout the continued pandemic.
Opponents to the amendment say the economic devastation wrought by the pandemic makes it the wrong time to move ahead on a major tax change. The state budget shortfall raises the potential that graduated rates would be raised, or income brackets lowered, to collect more money through a graduated rate tax. According to Jason Heffley, executive director of Ideas Illinois, which opposes the change. Taxes are already too high in Illinois and now is the worst time to push a massive tax hike when small businesses and working families are hurting.
Pensions Under 2019 Taxes
Although Illinois doesn’t tax pensions, the federal government does, so it’s important to pay close attention to the changes in tax laws that may affect your amount due. The updated tax tables could mean that the net amount you receive in your pension checks changes moving forward. You can change your withholding amount, but it’s important to check with a financial adviser or tax preparer to make sure you’re having enough taken out to avoid penalties at tax time. It’s also important to watch Illinois pension news today and on an ongoing basis to learn of any changes to this.
Visit IRS.gov/forms and search for Publication 575 to find a detailed listing of different types of pensions and annuity income and their tax implications.
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How Would This Affect Small Businesses
It depends. Several factors, including the organizational structure of the business and how much income it receives, come into play.
Traditional businesses in Illinois pay two types of income tax: the corporate income tax and âpersonal property replacement taxes,â which help fund local governments.
But many small business owners actually pay income taxes for their businesses through their own personal tax returns. Those so-called âpass-throughâ corporations are subject to the personal income tax, plus PPRTs.
The new tax law that would take effect if the Fair Tax amendment passes raises the corporate income tax rate â which applies to traditional businesses â from 7 percent to 7.99 percent.
But it could also raise the rates for shareholders or owners of âpass-throughâ corporations, if their income is higher than $250,000, because they are subject to the higher personal income tax rates for those brackets.
âUnder the proposal, corporate income would be taxed at a flat rate of 10.49 percent, the third-highest rate in the nation, while the highest bracket for pass-through business income would be taxed at 9.49 percent, the fourth highest in the nation,â the Illinois Chamber of Commerce said on its website.
Treasurer Clarifies Position On Taxing Retirement Income
Illinois Treasurer Michael Frerichs is clarifying statements he reportedly made about taxing retirement income in relation to a proposed progressive income tax.
The Daily Herald reported in June that Frerichs told a Des Plaines Chamber of Commerce event a progressive tax would make clear you can have graduated rates when you are taxing retirement income.
Asked about the comments on Wednesday at an unrelated news conference in Springfield, Frerichs said he wanted to clarify.
I was not pushing for that taxation, Frerichs said. What we talked about was the progressive tax and how that would only affect about three percent of taxpayers out there, taxpayers making more than a quarter of a million dollars a year. Thats something I support.
What we were talking about when we talked about retirement income were people drawing about a half a million dollars a year in pension income, Frerichs said. I was talking about an organization that has for years has argued for reducing pension benefits and then was taking the opposite and contractionary opinion.
Frerichs didnt say which group he was talking about. He said the progressive tax he supports does not include taxing retirement.
State Sen. Paul Schimpf, R-Waterloo, said the proposed amendment changing the states flat income tax to one with higher rates on higher earners is a bad idea, especially in the wake of a pandemic.
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Who Was Behind The Campaigns Surrounding The Ballot Measure
- See also: Campaign finance
Vote Yes For Fairness led the campaign in support of the constitutional amendment. Quentin Fulks, a former campaign staffer for Gov. J.B. Pritzker’s 2018 gubernatorial campaign and the leader of the 501 nonprofit Think Big Illinois, was the chairperson of the Vote Yes For Fairness PAC. Vote Yes For Fairness, along with allied committees, had raised $62.3 million. Gov. Pritzker contributed $58.0 million to the campaign. During his campaign for governor in 2018, Pritzker advocated for a graduated income tax.
Four PACsâCoalition to Stop the Proposed Tax Hike, Say No to More Taxes, Chambers Against Progressive Income Tax, and Vote No on the Progressive Taxâraised funds to oppose the constitutional amendment. Together, the committees received $61.3 million. Kenneth Griffin, CEO of the investment firm Citadel, contributed $53.75 million to the Coalition to Stop the Proposed Tax Hike.
When Does The State Of Illinois Start Releasing Income Tax Refunds
Illinois doesn’t provide specific time frames for issuing refunds, and return processing has gotten slower due to the state’s efforts to curb identity theft and fraud. The state does emphasize that filing electronically and requesting a refund via direct deposit will be the fastest way to get your refund.
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