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Multistate Tax Alert: Illinois Increases Income Tax Rates,Suspends Corporate Net Operating Loss Carryforwards,and Reinstates Tax


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The need for taxpayers to carefully consider every aspect of their Illinois income tax computation has never been greater than it will be in 2011. That is because the Illinois Income Tax Act was amended earlier today, concluding an emergency “lame duck” session to raise tax rates. For example, the overall corporate income tax rate (regular and “replacement” tax) has been increased from 7.3%, where it has been for the last twenty-one years, to 9.5%. These new rates are effective from January 1, 2011, as described below.

The new provisions, signed into law today by Illinois Governor Pat Quinn as P.A 96-1496, also include the following modifications to Illinois tax law:

  • An increase in the individual income tax rate from 3% to 5% effective January 1, 2011
  • A three-year suspension of the net loss carryover deduction for C Corporations for tax years ending after December 31, 2010 and prior to December 31, 2014
  • Mechanics for applying the rate changes to fiscal year taxpayers
  • Provisions for reversing the rate changes if state spending exceeds certain thresholds
  • Changes to the estimated payment safe harbor for installments due after January 31, 2011 and prior to February 1, 2012
  • The reinstatement of the Estate Tax effective January 1, 2011

We summarize these changes in the attached External Tax Alert.

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