As most of my clients that have heard me speak over the last 20 years can attest, I have been known to say, “Illinois is broke, so be alert to new taxes.” One fact I have mentioned on several occasions is that Illinois does not impose income taxes on your retirement income, whereas most surrounding states do. This Illinois “loophole” has been the primary bright spot for this state when comparing it to the tax environments in neighboring states.
Both Indiana and Wisconsin have lower real estate taxes and sales taxes than Illinois does. Both Indiana and Wisconsin do not tax transfers of wealth on death. Illinois does. The myriad of other taxes and fees that Illinois imposes on its citizens far outstrips those levied by Indiana and Wisconsin on their citizens. The income tax rates of Illinois and Indiana are very similar with Wisconsin’s rates being slightly higher, but Illinois does not tax retirement income.
Now comes the revelation that two budget watchdogs in Illinois have suggested that Illinois could close some of its budgetary shortfalls by taxing retirement income. Our new governor has not taken a position yet on the matter. The Chicago Tribune recently discussed this possibility.
If this were to come to pass, it could really change the calculus for those Illinois citizens contemplating a move out of this state. This, coupled with the new limitation on the deductibility of state income and real estate taxes on your Federal income tax return, could make staying in Illinois an even costlier proposition for a lot of people.