Will Recent Changes in Illinois Tax Law Affect You?
Keeping up with tax law changes is important for compliance, and to also optimize financial planning for you and your family. Recently, Illinois made amendments to its personal income tax laws, which are particularly impacting the standard exemption and the Earned Income Tax Credit (EITC). The Earned Income Tax Credit (EITC) is a refundable tax credit designed to help low to moderate-income working individuals and families. It can lower the amount of taxes owed and even result in a refund if the credit is more than the taxes owed. Essentially, it’s like getting money back from the government based on your income and family size, which can be a significant help for those with lower incomes.
Illinois Tax Breaks: Standard Exemption & EITC Explained
Understanding tax benefits like the Standard Exemption and the Illinois Earned Income Tax Credit (EITC) can be tricky, especially if you’re new to taxes. That’s why most will hire a Certified Public Accountant or utilize the services of a tax preparation company. Basically, these breaks are designed to help reduce your tax bill or even get you a refund. Let’s break down what they mean so you feel confident when speaking with your advisor:
Standard Exemption:
The Standard Exemption is like a tax deduction that reduces the amount of your income that’s subject to taxes. In Illinois, it’s calculated based on a basic amount plus a yearly adjustment for living costs. If you’re considered a dependent by someone else for tax purposes and your income is less than the Standard Exemption amount, you get a tax break. However, if your income is higher than that amount, you won’t qualify for the exemption.
If you’re 65 or older or legally blind, you might be eligible for an extra $1000 exemption. But there’s a catch: if your total income is too high, you won’t qualify. The government sets limits based on your federal adjusted gross income (AGI), which is the total income you report to the IRS.
Illinois EITC:
The Illinois Earned Income Tax Credit (EITC) is another way to lower your taxes if you’re working but don’t make a lot of money. It’s meant to help people with low to moderate incomes. To get it, you have to meet certain requirements and file a tax return, even if you don’t owe any taxes.
If you’re not a full-time Illinois resident or only lived there for part of the year, you can still claim the EITC based on the portion of your income earned in Illinois. The amount you get is a percentage of the federal EITC, which is calculated based on your income and family size.
These tax breaks can make a big difference in how much you owe or get back at tax time. If you’re unsure whether you qualify or how to claim them, it’s a good idea to talk to a tax professional who can help guide you through the process.
With a general understanding of standard exemption and Illinois EITC, let’s now take a look at the recent amendments and what that means to you.
Understanding 2024 Illinois Tax Law Amendments
With 2024 moving quickly, it’s important to understand the new amendments and how it may affect you.
- For tax years ending on or after December 31, 2023, and before December 31, 2024, the standard exemption is increased to $2,425.
- For tax years ending on or after December 31, 2024, and before December 31, 2028, it’s $2,050 plus the cost-of-living adjustment. After December 31, 2028, the standard exemption is zero.
- The Illinois EITC amount is now equivalent to 20 percent of the federal tax credit for tax years starting on or after January 1, 2023. Excess credit cannot be carried over to other tax years.
- Starting January 1, 2023, certain individuals who don’t qualify for the federal EITC may qualify for the Illinois EITC. These include individuals between the ages of 18 and 25 and those above 65. Additionally, taxpayers using an individual taxpayer identification number (ITIN) other than a Social Security number are eligible for the Illinois EITC. In such cases, taxpayers must complete a pro forma U.S. Form 1040 to compute the allowable amount of the federal tax credit for calculating the Illinois EITC.
If these amendments sound confusing or difficult, the good news is that your team at The Hechtman Group are experts in tax planning and preparation. We are keenly aware of every rule, regulation, and tax law to ensure the best outcome for you and your family.
Contact us today by phone (847) 256-3100 or email at info@thehechtmangroup.com.