As part of the 2023 budget (S.B. 157) that Illinois Governor J.B. Pritzker signed into law on April 19, more than $1.8 billion in tax relief was passed. Most of this relief is of a temporary nature, including suspending sales tax on groceries, freezing tax on fuel, providing a back-to-school sales tax holiday and issuing one-time income and property tax rebates. In addition to these changes, the percentage of the federal earned income tax credit was increased to provide for larger Illinois earned income tax credits beginning in 2023. Keep reading to learn more about these upcoming tax breaks:
Sales tax holiday
From August 5-14, Illinois will have a “sales tax holiday,” in which sales tax rates on school-related items (no cap) and eligible clothing and footwear (items cannot exceed $125 each) will be reduced. Applicable items will have a state sales tax of 1.25% instead of the existing 6.25% rate. The local sales taxes will unfortunately still apply.
Retailers can reference the Illinois Department of Revenue’s bulletin for questions on sales, discounts, exchanges and more to get ready for the upcoming sales tax holiday.
Tax on food & gas
Illinois’ sales tax on grocery products (currently 1%) will be suspended for an entire year beginning on July 1, 2022. The fuel tax will also be frozen at 39 cents per gallon from July 1, 2022 through December 31, 2022.
Property & income tax rebates
Illinois taxpayers that file their 2021 income tax return by October 17 will be eligible for property and income tax rebates. The property tax rebate is a maximum of $300 per household that is equal to the credit claimed for residential real estate property taxes on the 2021 Illinois income tax return. The individual income tax rebate is $50 per individual ($100 for couples who file married filing jointly), provided their federal adjusted gross income is less than $200,000 (or $400,000 married filing jointly). An additional $100 per dependent, up to three dependents, will be included in the rebates. These rebates will be paid out by the Illinois Department of Revenue, so application forms are not required and rebates are not considered taxable income or used in determining any means-tested benefit program by Illinois.
Earned Income Tax Credit Changes
The budget bill permanently increases the Illinois earned income tax credit to be based on 20% of the federal tax credit, instead of 18%. It also increases eligibility for the Illinois earned income tax credit to individuals that are between 18 and 24 years old, those 65 and older without qualifying children, and taxpayers that do not have a social security number and file their income tax returns using an individual taxpayer identification number.
Incentives for start-ups & manufacturers
Under the budget, start-up businesses can now apply the Economic Development for a Growing Economy (EDGE) tax credit against withholding taxes. In addition, the ability for the Illinois Department of Commerce and Economic Opportunity (DCEO) to enter into new EDGE credit agreements has been extended through June 30, 2027. Lastly, manufacturers in the semiconductor, microchip and component parts industries will benefit from additional tax incentives that can be applied for with the DCEO.