In the upcoming November 2020 election, Illinoisians will vote on what could be a very impactful amendment (Illinois Fair Tax) to the state’s Constitution. This amendment, if passed, may allow Illinois’ current flat tax rate to be replaced with a progressive income tax.
Currently, thirty-two states, as well as the District of Columbia, impose a progressive (or graduated rate) income tax. Illinois is only one of nine states that still impose a flat income tax, as the current Illinois constitution mandates that income be taxed at a flat rate regardless of income level.
A graduated rate income tax is a system of taxation that is similar to the federal bracketed system, under which different levels of income are taxed differently. Generally speaking, the higher level of income that a person (or couple) earns, the higher the tax rate at which their income will be taxed.
You can see the new proposed IL graduated tax rates for various levels of income and tax return filing statuses below:
Married or Filing Jointly
$0 – $10,000 –> 4.75%
$10,000 – $100,000 –> 4.9%
$100,000 – $250,000 –> 4.95%
$250,000 – $500,000 –> 7.75%
$500,000 – $1mil –> 7.85%
$1 mil+ –> 7.99% – all income taxed at this rate
For single filers
$250,000 – $350,000 –> 7.75%
$350,000 – $750,000 –> 7.85%
$750,000+ –> 7.99%
Note: any individual or single filers with income above $750,000 per year will be
To be more specific, in the case of a married couple filing a joint tax return, the graduated-rate income tax system would work as follows:
A. The couple’s first $10,000 of income would be taxed at 4.75%
B. Any income earned which puts their cumulative income over $10,000 and any income up to $100,000, would be taxed at 4.9%
This means that if the couple earned over $100,000 total for the year, $90,000 of this couple’s income could be taxed at 4.9%
C. Any income over $100,000 and up to $250,000 would be taxed at 4.95%
If earning at or above $250,000, a married couple would be taxed on $150,000 of their income at 4.95%
D. The next tier would be any income over $250,000, but not over $500,000, which would be taxed at 7.75%
If earning at or over $500,000 total, $250,000 of this couple’s income would be taxed at 7.75%
E. Any income over $500,000 and up to $1 million would be taxed at 7.85%
If earning over $500,000, then $500,000 of the couple’s income would be taxed at 7.85%
F. In a diversion from the federal system, once a married couple meets the annual threshold of $1 million per year, their tax rate would cease to follow the tiered system laid out above
At this income level, the entirety of the couple’s $1 million in income would be taxed at 7.99% (without regard to the lower brackets)
As with any political issue, there are proponents and opponents to the proposed graduated-rate income tax. The purpose of this is to provide you with a basic understanding of the proposal. As always, we strive to educate our clients and hope this may encourage you to conduct your own research in order to better understand the upcoming November ballot.
If you have any questions about how this might impact your Illinois tax return please reach out to our tax team.