Included in the budget Illinois lawmakers approved on July 6th was a 1.2 percentage point increase in Illinois’ income tax rate. The 32-percent increase in the rate to 4.95 percent from 3.75 percent means the rate now stands nearly as high the, pre-crisis, temporary rate approved by Democrats in 2011 that expired in 2015.
Lawmakers said the tax increase will allow the state to begin paying down some of the $15 billion backlog in bills the state owes social service providers, health care providers, and other contractors.
But, what does the tax increase mean for everyday earners? For every $10 you earn, you will be paying an additional 12 cents in tax. For the median income household in Illinois, that amounts to about $691 more in annual income tax.
The 32-percent increase may also raise the state’s effective tax rate compared to a few of its neighbors. May is the critical word here, because in the United States each tax system is unique as a snowflake and making a simple comparison of the highest and lowest income rates does not tell the whole story. Of the five states surrounding Illinois, only Indiana shares a flat tax — one tax rate applied to all eligible income levels. All other states have progressive income tax systems — with a range of rates applied to different income ranges. In some states, like Indiana, counties may also collect an income tax directly.
Whether you think the increase in tax is worth the pain to your wallet may have more to do with your own income level and your view of the role of government. If you are thinking of packing up the car and heading west, keep in mind Iowa will tax every dollar you earn over $70,785 at 8.98 percent.