Chicago

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Taxes and Deductions

Basic information about income tax, deductions, and social security contributions related to employment.

Sections

1. Income Tax in Chicago

Chicago residents are subject to federal income tax, Illinois state income tax, and potentially local taxes depending on their circumstances.

Federal Income Tax:

  • Administered by: Internal Revenue Service (IRS).
  • Rates: Federal income tax is progressive, with rates ranging from 10% to 37% depending on your income bracket.
  • Filing Deadline: April 15 (or the next business day if it falls on a weekend/holiday).

Illinois State Income Tax:

  • Administered by: Illinois Department of Revenue (IDOR).
  • Rate: Flat rate of 4.95% on all taxable income.
  • Who Pays: All residents and non-residents earning income in Illinois.
  • Deductions: Illinois does not allow itemized deductions but offers a standard exemption of $2,425 per taxpayer (2023).

Local Income Tax:

  • Chicago does not impose a local income tax. However, residents may be subject to other local taxes (e.g., sales tax, property tax).

2. Payroll Taxes

Payroll taxes are deducted from your paycheck by your employer and include the following:

Federal Payroll Taxes:

  • Social Security Tax: 6.2% (matched by employers, for a total of 12.4%). Applies to wages up to $160,200 (2023 cap).
  • Medicare Tax: 1.45% (matched by employers, for a total of 2.9%). No income cap.
  • Additional Medicare Tax: 0.9% on wages over $200,000 (single filers) or $250,000 (married filing jointly).

Illinois State Unemployment Insurance (SUI):

  • Employers pay into the state unemployment insurance fund. Employees do not directly pay this tax.

Chicago-Specific Payroll Taxes:

  • Chicago does not impose additional payroll taxes on employees. However, employers may be subject to the Employer Expense Tax if they have 50+ employees working in the city.

3. Property Tax

Property taxes in Chicago are a significant source of revenue for local government and schools.

Key Details:

  • Administered by: Cook County Assessor’s Office and Cook County Treasurer.
  • Rate: Varies by property location and type. The effective tax rate for residential properties in Chicago is approximately 2.1% of assessed value.
  • Assessment: Properties are assessed at 10% of market value for residential properties.
  • Payment Schedule: Property taxes are paid in two installments:
    • 1st installment: Due in March (55% of the previous year’s total tax bill).
    • 2nd installment: Due in late summer (adjusted for the current year’s assessment).

Exemptions and Deductions:

  • Homeowner Exemption: Reduces the taxable value of your primary residence.
  • Senior Citizen Exemption: For homeowners aged 65+.
  • Senior Freeze Exemption: Freezes the assessed value for seniors with limited income.
  • Disabled Persons/Veterans Exemptions: Available for qualifying individuals.

4. Sales Tax

While not directly related to income, sales tax is a significant consideration for Chicago residents.

  • Combined Sales Tax Rate: 10.25% (includes state, county, and city taxes).
  • Breakdown:
    • Illinois State: 6.25%.
    • Cook County: 1.75%.
    • Chicago: 1.25%.
    • Regional Transit Authority (RTA): 1%.

5. Deductions and Credits

Taxpayers in Chicago can take advantage of various deductions and credits at the federal and state levels.

Federal Deductions and Credits:

  • Standard Deduction: $13,850 (single) or $27,700 (married filing jointly) for 2023.
  • Itemized Deductions: Includes mortgage interest, state and local taxes (SALT), medical expenses, and charitable contributions.
  • Earned Income Tax Credit (EITC): For low- to moderate-income earners.
  • Child Tax Credit: Up to $2,000 per qualifying child.

Illinois-Specific Deductions and Credits:

  • Education Expense Credit: Up to $750 for K-12 education expenses.
  • Property Tax Credit: 5% of property taxes paid on your primary residence.
  • 529 College Savings Plan Deduction: Contributions to Illinois 529 plans are deductible (up to $10,000 for single filers, $20,000 for joint filers).

6. Filing Taxes

Filing taxes in Chicago involves both federal and state returns. Here’s how to proceed:

Federal Tax Filing:

  1. Gather Documents: W-2s, 1099s, receipts for deductions, etc.
  2. Choose Filing Method:
    • Online: Use IRS Free File (if income < $73,000) or commercial software like TurboTax.
    • Paper: Download forms from the IRS website and mail them.
  3. Submit by Deadline: April 15.

Illinois State Tax Filing:

  1. Gather Documents: Federal return, W-2s, and other income records.
  2. File Online: Use MyTax Illinois (free for most taxpayers).
  3. Paper Filing: Download Form IL-1040 from the IDOR website.
  4. Submit by Deadline: April 15.

Local Filing:

  • No local income tax filing is required in Chicago.

7. Local Considerations

  • Cook County Property Tax Appeals: If you believe your property is over-assessed, you can file an appeal with the Cook County Assessor’s Office.
  • Tax Preparation Assistance: Free tax preparation services are available for low-income residents through programs like the Center for Economic Progress and Ladder Up.
  • Public Transit Pre-Tax Benefits: Employers in Chicago often offer pre-tax transit benefits for CTA, Metra, and Pace commuters.

8. Resources for Taxpayers in Chicago

Here are some helpful resources for navigating taxes:

Federal Resources:

Illinois State Resources:

Local Resources:

Free Tax Help:

9. Tips for Newcomers

  • Understand Residency Rules: If you moved to Chicago mid-year, you may need to file part-year resident returns for Illinois.
  • Track Local Taxes: Be aware of Chicago’s high sales tax and property tax rates when budgeting.
  • Seek Professional Help: Consider hiring a CPA or tax preparer if you have complex tax situations (e.g., self-employment, rental income).

By following this guide, you’ll be well-prepared to navigate the tax system in Chicago. Let me know if you need further clarification or assistance!