Earned Income Tax Credit^

Income Tax Rate: 5 percent (temporary, see note)

State EITC: Yes

Refundable: Yes

Enacted: 2000

Formula: 7.5% of the federal tax credit for each taxable year beginning on or after January 1, 2012 and ending prior to December 31, 2013 and 10% of the federal tax credit for each taxable year beginning on or after January 1, 2013.

Notes/News: On January 12, 2011, the governor signed into law a tax package that increased income and corporate tax rates and set strict spending limits to cover the deficit and get the state back on the path to fiscal stability. Under this provision, the income tax rate will be 5 percent from 2011 through 2014 (up from 3 percent in 2010); it will be 3.75 percent from 2015 through 2024; and it will be 3.25 percent from 2025 on.  A state-wide coalition of advocates supports expanding the state’s EITC. On January 27, 2011, SB 118 was introduced to increase the state EITC to 20 percent of the federal credit. HB 1947, introduced on February 17, 2011, would phase-in the EITC increase over several years, until it reached 20 percent in 2013.

On November 1, 2011, Illinois Gov. Pat Quinn met with legislative leaders to discuss jobs and economic growth, debating several versions of a tax break package comprised of several tax break initiatives. While corporate tax breaks have remained at the center of the plans, Gov. Pat Quinn and House Majority Leader Barbara Flynn Currie added to the “compromise” proposals an item to triple the size of the state’s Earned Income Tax Credit from 5 to 15 percent of the federal credit over the course of a couple of years. The package as a whole was estimated to cost $850 million a year, with the EITC expansion estimated to cost the state $90 million in the first year and $180 million the following year.

On November 27, legislators scaled back the size of the package to $250 million a year to ease concerns about its potential costs. The revised plan cut back the scope of the EITC increase to about 7.5 percent of the federal EITC, rather than the 15 percent put forward in earlier proposals. The House failed to vote on the bill, but on November 29, the Senate approved its own version of the bill that included a larger EITC increase to 10 percent of the federal credit by 2014. While the size of the EITC increase was the only major difference between the two bills, the House overwhelming rejected the Senate bill by a vote of 8-99.

The special session reconvened on December 12, after legislators in the House were able to reach an agreement on the tax-reduction package. The House approved a plan very similar to the one passed in the Senate but it broke the tax breaks into two separate bills, one of which doubled the size of the state’s EITC to 10 percent of the federal credit over a three-year period. The expanded credit will help about 935,000 families keep a bit more of their paychecks, providing them with an additional $90 million in 2014, when the improvement is fully in effect. Illinois families will also receive an additional $50 boost from an increase in the personal exemption, which will now also begin to rise each year by the rate of inflation.

On December 13, the bill cleared its final legislative hurdle, when the Senate approved it along with a larger companion bill to cut taxes for corporations and smaller businesses. The expanded EITC represents a significant portion of the $300 million overall package. Gov. Pat Quinn signed it into law on January 10.

Reports/Fact Sheets: Tax Fairness For Low-Income Working Families: The Importance of Expanding the State Earned Income Tax Credit, Voices for Illinois Children, December 2011

Growing the Earned Income Tax Credit: A cost-effective approach to reducing poverty & stimulating the economy, Making Work Pay in Illinois, December 2011

Strong businesses & local economies depend on strong families & communities, Center for Economic Progress, December 2011

Preserve work supports and tax relief for working families, Voices for Illinois Children Federal Policy Bulletin, June 2010

Supporters of the EITC for struggling families also back the revenue reforms necessary to help those households, Make Work Pay, March 2010

Illinois: State and Local Taxes in 2007, November 2009

Grow the Illinois EITC: Keep working families in mind during FY10 budget and tax talks, Make Work Pay, April 2009

A Plan for Reforming Illinois’ Revenue Structure, Voices for Illinois Children, 2009

Help Struggling Families: Grow the Illinois EITC, Make Work Pay Coalition, February 2009

‘Make Work Pay’ and Taxes Fairer for Working Families—Grow the Illinois Earned Income Tax Credit, 2007

Help Working Families: Grow the Illinois EITC, 2006

Reauthorize and Improve the Illinois Earned Income Tax Credit , Voices for Illinois Children, 2004

Illinois State Fact Sheet, Center on Budget and Policy Priorities

Supporting Working Families When State Coffers Are Empty: Lessons from Illinois’ Successful Campaign for a Better EITC, Tom Waldron, The Hatcher Group

Low Income Families Will Benefit From Laws, November 2003

State Alters Earned Income Tax Credit; Changes Will Benefit Low-Income Workers , September 2003

How Much is Enough? Assessing the Level of State Services in Illinois, Voices for Illinois Children’s Budget and Tax Policy Initiative, November 2002

Articles: Supporters of the Earned Income Tax Credit for struggling families also back the revenue reforms necessary to help those households, Make Work Pay Campaign, March 2010

Our Opinion: Increase Earned Income Tax Credit, The State Journal-Register, April 28, 2009

Fairer Tax Treatment, The Chicago Tribune, April 16, 2009

Advocacy Groups Push for Big Increase in Tax Credit, by Ryan Keith, GateHouse News Service, April 14, 2009

Ease ‘Tax Day’ pressures on struggling families, Voices for Illinois Children and coalition partners, April 14, 2009

Lifting Families from Poverty, by Richard M. Daley, Mayor of Chicago, Chicago Tribune, January 31, 2001

Make Tax Credit Refundable, Dan Lesser, National Center on Poverty Law, Chicago Tribune, January 29, 2001

Editorial: Tax Relief for the Working Poor, Chicago Tribune, January 23, 2001

Child Tax Credit^

State Credit: No

Notes/News: In his 2012 State of the State speech, Governor Quinn proposed creating a new state child tax credit, worth $100 for a typical family of four. However, as of May, 2012, there has been no further legislative action and none is expected.

Child and Dependent Care Tax Credit^

State Credit: No

Property Tax Circuit Breaker^

Circuit Breaker: Yes, known as the Circuit Breaker Tax Grant

Eligibility:¹ Filers must be at least 65 years old or have been 63 or 64 at the time of a spouse’s death, or be disabled, and live in a property that is subject to property taxes. Regardless of age, filers must meet the following income requirements:

The Department on Aging may adjust the income requirements in accordance with cost of living adjustments in Social Security benefits.

Formula:² The credit is calculated by taking the difference between the amount owed on a property and 3.5 percent of the filer’s income. The credit cannot exceed $70 for filers who earn over $14,000. The maximum credit for filers earning less than $14,000 is calculated by subtracting 4.5 percent of household income from $700.  The maximum grant would thus be $700.

Notes/News: The Illinois Property Tax Circuit Breaker is part of a program that also provides seniors with discounted drugs and reduced license plate fees. For more information on those programs see the Illinois Department on Aging website: Circuit Breaker and Illinois Cares Rx.

The Illinois Department on Aging has significant discretion in the application of the Circuit Breaker program. Due to cuts in state funding, in FY 2010, the department reduced all grants, including property tax grants, by 50 percent; the circuit breaker has remained at that level in 2011 and 2012.

In 2011, the Governor has proposed eliminating the property tax circuit breaker for both seniors and the disabled for FY 2012. In the House, HB3755 has been introduced, which would fully fund the Circuit Breaker program. On May 11, the House appropriations committee restored the funding for the property tax circuit breaker program in the human services bill, and left the prescription circuit breaker at half its current size.

On May 31, the Illinois legislature approved a budget that funds the property tax circuit breaker at the same level as 2010 and 2011  (but included only half the funding for the prescription circuit breaker.) While reports indicated that the governor may line-item veto this funding, he signed a budget into law that includes full funding for the property portion of the state’s Circuit Breaker program.

Reports: Targeting Property Tax Relief: A Design to Expand Illinois’ Circuit Breaker, Cook County Assessor’s Office, October 2009

Renters’ Credit: Possible Models to Make Illinois Taxes Fairer, Ann Courter, Voices for Illinois Children Budget and the Budget & Tax Policy Initiative, May 2005