The Illinois State Income Tax Act passed last July includes a 50% tax increase on Partnership, LLC and LLP Income!  A Member accountant reported that just for his clients alone, it would mean a $2,000,000 increase in tax dollars.  Most of us believed an income tax increase was rejected by the Illinois legislature.  Many service businesses are discovering that simply isn't true. This tax increase applies to all partnerships and to LLCs and LLPs that file as partnerships, including accountants, doctors, dentists, consultants, realtors, and all similar service businesses.

What's odd is not a penny of the increased replacement tax will benefit the state: 100% of replacement tax dollars are distributed to municipalities statewide. The Illinois Chamber reports that IL-SB 1912, a hidden amendment to this Act, Deep in SB 1912 (now PA 96-0045) was amended to subject most personal service income of partnerships, LLCs and LLPs to a brand new tax – a 1.5% Illinois replacement income tax.  The 1.5% replacement tax is in addition to the personal income tax of 3% paid by each partner receiving his or her distributive share of partnership income, resulting in a 50% increase in tax.