Illinois income tax
Illinois lies in the north-central U.S, and also borders on Lake Michigan. Its neighboring states are Indiana, Lowa and Missouri, Kentucky, and Wisconsin. Its total area is 57,918 square miles and is also ranked 25th in size among the 50 states.
The Illinois Department of Revenue (IDOR), headquartered in the state capital of Springfield is a cabinet-level department of state government. Some of its major functions include collection of State taxes and local taxes, overseeing the states casino industry and so on. The state income tax was enacted in Illinois during the year 1969. The IDOR expects a collection of $24.6 billion from taxes and gambling revenues for the fiscal year 2007. This accounts for five-sixth of the states general funds revenues for the year.
Now, what is Income tax?
Income tax is nothing but tax levied by the federal or state government on the annual income of an individual or a company. This is based on individuals earned and unearned income, using the governments graduated scale. Unlike India, the U.S has two levels of imposing tax on its taxpayers: one is the tax imposed by the federal government and other by the state government (which is optional). So, state income tax is an income tax that is levied by each individual state on its discretion. Alaska, Florida, and Texas are some states that do not levy state income tax. As of 2007, the state income tax is highest in Vermont with a maximum rate of 9.5%, and minimum in Illinois with a flat rate of 3%.
Who is liable to pay income tax in Illinois?
Income tax is imposed on each individual, corporation, trust, and estate earning or receiving income in Illinois. This is calculated by multiplying net income by a flat rate. And this rate is 3% of the net income. The base for calculation of individual income tax is federal adjusted gross income. Let us have a quick look at its calculations.
Federal adjusted gross income = Income various deductions
Base income= Federal adjusted gross income + (federally tax-exempt interest income) (federally taxed retirement and social security income).
Net Income = Base Income (federally claimed exemptions+ additional exemptions).
- Additional exemptions are generally provided for any taxpayer or their spouse who is either 65 years of age or older, legally blind or both. The maximum amount of each exemption is $2000. The tax rate is then applied to this net income to arrive at the final tax figure.
Illinois residents are also given credits for income taxes paid to other states. Income tax must be paid on or before April 15th. Form IL 1040 is used to submit the same.Those who expect their individual taxes to be more than $500, after subtracting Illinois income tax withheld, credits for Illinois property tax paid, Education expense credit, Earned income credit, Credit for income tax paid to other states, Income tax subtraction and credits are liable to pay estimated tax payment.
Estimated payments are due on April 15th, June15th, September 15th, and January 15th of the following year. Individual taxpayers must submit Form IL-1040-ES, estimated income tax payment for individuals and mail it with their estimated tax payments. EFT (Electronic funds transfer) participants or those paying by credit card do not complete or mail the form IL-1040-ES. Individuals who cannot file their annual returns by due date are given an automatic extension of 6 months. This grace period is only given to file the return form IL 1040 and not for payment of outstanding tax liability. Wow! This is wonderful.
Corporate tax
Income tax in Illinois is largely based on federal income tax code. Corporate earning or receiving income in Illinois is subject to Income tax. This tax is calculated by multiplying net income by flat rate.
Corporation pay income tax @ 4.8% and replacement tax @ 2.5%. Corporate tax is calculated as follows:
Federal taxable income = Income - deductions.
Base income = federal taxable income {deductions like interest income from U.S treasury obligations} + {state, municipal and other interest income excluded from federal taxable income}.
A Corporation is required to file corporate tax using Form IL 1120 if
(a) It has net income or loss as defined under the IITA (or)
(b) It is qualified to do business in the state of Illinois and is required to file a federal income tax return
(Regardless of net income or loss).
Corporations must file their tax returns on or before March 15th of the following year.
Illinois government also provides an automatic seven-month extension for Corporate to filing their tax returns in case they are unable to file the same by due date. This grace period is only given to file the return form IL 1120 and not for payment of outstanding tax liability. However, if one expects their tax to be due, then one must file the form IL 505 B to make some tentative payment in order to avoid any interest or penalty on tax not paid by due date of return.
Estimated Payments.
Corporations who expect their income and replacement tax liability to be more than $400 must make quarterly estimated payments. In this case, form IL 1120 ES must be submitted with tax payments. Estimated payments fall due on 15th of 4th, 6th, 9th and 12th month of the tax year. Here also EFT participants need not file IL 1120 ES.
If one has any change to be made in the return form before the lapse of automatic extension due date, then they need to use the form IL 1120 X, mark it CORRECTED on the top and show the changes. This would result in recalculation of penalties and interest. But if extension date has passed, then simply use the form IL 1120 X to show the changes.
Exempt Organizations.
Organizations that are exempted must be either formed as a corporation or a trust. They pay both regular income taxes as well as replacement tax, but the tax rates differ.
Corporations.
Income tax 4.8%
Replacement tax 2.5%
Trusts:
Income tax 3%
Replacement tax- 1.5%
These organizations use form IL-990-T to submit their annual return on or before May 15th.
But how does one pay their taxes? Well, it could be paid by any one of the following ways.
- By account debit
- By credit card with some charges.
- By Electronic funds transfer (EFT).
e-filing of taxes.
Illinois allows its taxpayers to file and pay their taxes electronically. Web pay is the software assigned to pay ones individual income tax return (IL 1040), estimated income tax payment for individuals (IL 1040ES), and automatic extension payment by debiting their checking or savings account. The only requirement is the IL PIN, the Illinois personal identification number to use this facility.
Pay by credit card.
Official Payment Corporation as authorized by the entity to which one is making their payment offers this facility. They also charge a convenience fee for processing a taxpayers payment request. Then, their card account is charged for the sum of tax liability and convenience fee, and once the Accept button is pressed, payment is initiated and the tax is remitted accordingly. One also gets a digital receipt for the payment made. But if there is any difficulty in processing, the Department would intimate the taxpayer, and then it is their onus to pay their taxes by any other means.
Under what circumstances will a taxpayer be penalized?
Penalty is levied under the following circumstances:
- Penalty for failure to file or pay - a penalty equal to 2% of the outstanding tax amount, up to a maximum of $250 is charged if returns are not filed within the due date. This amount is proportionately reduced by any tax that was already paid on time, or by any credit that was properly allowable on the date the return was required to be filed. However, an additional penalty of greater of $250 or 2% of the tax amount is levied if taxes were not paid within 30 days receipt of notice of non-filing by the Department of Revenue.
- Penalty for failure to file correct information returns- a penalty of $5 is levied on each return filed with incorrect information, up to a maximum of $25,000 for each calendar year.
- Penalty for negligence- failure to comply with the provisions of any tax act, intentional disregard of rules and regulations is considered negligence. Any person who files their tax negligently is charged a penalty equal to 20% of the resulting deficiency. However, if the taxpayer is able to prove that such negligence is due to reasonable cause, then penalties are waived off.
- Penalty for fraud. If any claim is made with intend to defraud, then a penalty equal to 50% of the resulting deficiency is imposed.
Thus we find that tax structure in Illinois is very reasonable and customer-friendly.
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