The Illinois General Assembly passed the Fiscal Year 2022 budget implementation bill, S.B. 2017, that intends to raise $650 million of new tax revenue based on changes to the computation of taxable income. Governor J.B. Pritzker is expected to sign the bill into law.
The changes to taxable income include:
- Limit the corporate net operating loss deduction to $100,000 annually for taxable years ending on or after December 31, 2021 and before December 31, 2024.
- Require an additional adjustment for taxpayers who claim the 100% federal bonus depreciation deduction that was enacted as part of the 2017 tax reform act. This adjustment is effective for taxable years ending on or after December 31, 2021.
- For taxable years ending on or after June 30, 2021, the bill decouples Illinois from the federal corporate deductions for global intangible low-taxed income (GILTI) related to certain foreign-sourced dividends.
The bill also rolls back earlier legislation intended to phase out the Illinois corporate franchise tax. The proposed law continues to exempt the first $1,000 of a taxpayer’s liability but removes the language to eliminate the tax.
Illinois Assembly Approves SALT Cap Workaround for Partnerships and S Corporations
The Illinois General Assembly unanimously passed S.B. 2531, allowing a workaround to the federal $10,000 cap on state and local tax deductions. Governor J.B. Pritzker is also expected to sign this bill into law.
For taxable years ending on or after December 31, 2021 and beginning prior to January 1, 2026, partnerships and S corporations can elect to pay an entity-level income tax at the 4.95% rate and then partners and shareholders would claim a credit on their tax return. The entity-level tax is not subject to the SALT cap.
This entity-level tax is subject to estimated tax requirements unlike the replacement tax and pass-through withholding. The election could provide a significant federal tax benefit to partners and S corporation shareholders, however, it needs to be carefully considered based on your particular tax situation.