ILLINOIS TAX UPDATE
Illinois has adopted several new income tax laws which take effect in 2012. Most notably, on December 16, 2011 the Governor signed into law P.A. 97-0636, which provided for corporate tax relief, along with several individual tax and estate tax modifications. Here are the major new Illinois tax laws that you should be aware of for 2011 and 2012:
Individual Tax Changes:
Household Employee Withholding – If you withheld income tax from a household employee, you may now report and pay the tax withheld on Form IL-1040. There is a new line for “Household Employment Tax” on 2011 Form IL-1040. Previously a household employer had to file separate employment tax returns if they withheld Illinois tax from a household employee.
IL-1040 Due Date – The due date for filing Illinois individual income tax returns – Form IL-1040, has been extended to April 17, 2012. This is because April 15 is on a weekend and Illinois is following the IRS in observing the Emancipation Day holiday on April 16.
Same-Sex Civil Unions – If you were in a same-sex civil union as of December 31, 2011, you must file your Form IL-1040 using either the “married filing jointly” or “married filing separately” filing status. Such returns must be filed on paper, rather than electronically. Prior to the 2011 tax year, persons in a same-sex civil union filed Illinois tax returns using the “individual” filing status.
Business Tax Changes:
Research and Development Credit – The research and development tax credit which was scheduled to expire on December 31, 2010 has been extended through tax years ending on or before December 31, 2015. If you are a fiscal year filer and did not claim any credit on your return for a tax year ending in 2011, you may amend your return for that tax year to claim the credit, as if the credit never expired.
Suspension of Net Operating Loss Deduction – For tax years ending on or after January 1, 2011 and before December 31, 2012, the use of Illinois net operating loss deductions is suspended. You may continue to earn losses that can be carried and used when the suspension expires. For tax years ending on or after December 31, 2012 and before December 31, 2014, Illinois net operating loss deductions may not exceed $100,000. Previously, no Illinois net operating loss deduction was to be allowed for years ending before December 31, 2014.
New Illinois Tax Appeal Tribunal – The new law provides that Illinois is to create a new, independent tax appeal tribunal to hear appeals of notices of tax liabilities or deficiencies for all taxes administered by the Illinois Department of Revenue. This new tribunal is to be set up by 2013, but details remain to be worked out. Previously, taxpayers had to appeal to a board that was staffed by Illinois Department of Revenue employees. The only way for a taxpayer to obtain an independent review of their appeal was to pay the tax and go to court.
Tax Credits Extended by 5 Years – Any tax credit scheduled to expire in 2011, 2012, and 2013, has been extended by adding 5 years to the expiration date contained in the statute. Previously, several tax credits that did not have an expiration date named in their original statute would automatically expire five years after they were enacted.
Special Sales Factor for Federally Regulated Exchanges – The new law creates an alternative apportionment methodology for “federally regulated exchanges”. This law is widely considered to be a special tax incentive to a large Illinois business that was considering relocating to another state to lower its income tax liability.
Angel Investment Credit – For tax years beginning on or after January 1, 2011, and ending on or before December 31, 2016, an “Angel Investment Credit” may be claimed in an amount equal to 25% of an investment made directly in a qualified new business. The credit is authorized and issued by the Illinois Department of Commerce and Economic Opportunity (“DCEO”) and a certificate from DCEO must be attached to the tax return.
Live Theater Production Tax Credit – For tax years beginning on or after January 1, 2012 (so calendar year 2011 taxpayers cannot take this credit) a new credit is available for costs associated with the production of live theater. This credit is also administered by DCEO and it is capped statewide at $2,000,000 per year.
Small Business Jobs Creation Tax Credit – The Illinois Small Business Jobs Creation Tax Credit is extended through tax years ending prior to January 1, 2016. The “incentive period” for hiring new employees is extended from June 30, 2011 to June 30, 2016.
Estate Tax Changes:
Illinois Estate tax Exclusion Increased – The Illinois estate tax exclusion is increased to $3,500,000 for persons dying on or after January 1, 2012 and prior to January 1, 2013. The estate tax exclusion is increased to $4,000,000 for persons dying on or after January 1, 2013. For persons dying in 2011, the Illinois estate tax exclusion was $2,000,000. The federal exclusion for persons dying in 2011 and 2012 is $5,000,000.