1. S Corp Illinois
2. Tax Rate of Illinois Income Tax
3. Tax Base of Illinois Income Tax
4. Filing Requirements for Illinois Income Tax
5. Pass-through Withholding Payments
6. How to Correct/Change the Return

S Corp Illinois

Income tax is a tax imposed on every S corp in Illinois and any company that either earns or receives income in the state. The tax is a flat rate as it is based largely on the federal income tax code. To calculate Illinois Income Tax, you calculate your net income multiplied by the flat tax rate.

Tax Rate of Illinois Income Tax

S corporations do not pay regular Illinois Income Tax but are instead subject to a Personal Property Tax Replacement Income Tax. To determine what the replacement tax rate will be for your S corporation, a tax rate database will be used. If you are a shareholder in a corporation, you will be taxed at your income rate level for the income reported as your federal adjusted gross, or taxable income. 

Tax Base of Illinois Income Tax

To determine the tax base of Illinois Income Tax, you will start with the federal taxable income minus deductions that are shown on the Illinois Small Business Corporation Replacement Tax Return. Once federal taxable income has been established, certain items will need to be added back, such as local and state income that was not counted in the federal income. Additionally, some items will need to be subtracted, such as interest income from Treasury obligations before the final "base income" will be determined.

Filing Requirements for Illinois Income Tax

Any small business corporation that is defined as such by the IRC section 1361 and has a net income or loss that falls under the definition of the Illinois Income Tax Act (IITA) will have to file a Small Business Corporation Tax Return of Form IL-1120-ST. The same holds true for businesses that are defined the same and qualified to do business in Illinois no matter whether or not they have income or losses. The deadline for filing a Form IL-1120-ST is the of the third month after the close of the tax year.

A qualified chapter S subsidiary as defined by the IRC section 1361(b)(3) will be regarded as a separate entity when it comes to filing of the IITA. Each entity will be required to include all income, loss, credit, and deductions the same as the primary business.

S corporations that are part of a unitary business group will need to file an Illinois Schedule UB, Combined Appointment for Unitary Business Group according to the instructions defined by the schedule. While S corporations can file as members of a unitary group, filing a combined return is not an option.

S corporations will automatically be granted a seven-month extension from the time of filing your business corporate tax return and are not required to fill out a request extension to obtain it. Yet, if taxes are expected to be paid, it is the company's responsibility to file a Form IL-505-B and pay the tentative tax that they estimate they owe. This will prevent the accrual of penalties and interest that can occur from the returns original due date. Even if you do file a Form IL-1120-ST for an extension for filing it does not allow you an extension of payment before penalties and interest occur.

Pass-through Withholding Payments

A law that went into effect December 31, 2008, requires partnerships, S corporations, and trusts to pay Illinois Income Tax on their shareholders, beneficiaries, and partners who are non-residents. This law is referred to as a “pass-through entity withholding,” even though the deductions are not taken from payments the pass-through entities make to the owners.

All payees are required to be notified by the shareholder, partner, or trust what the pass-through withholding payments will be that are made on their behalf. If pass-through withholding payments satisfy the partner's, shareholder's, or beneficiary's Illinois Income Tax liability, there will be no return required.

How to Correct/Change the Return

For those who may need to change a return after it has been filed, you will be required to file a Form IL-1120-ST-X, Amended Small Business Corporation Replacement Tax Return. If filed by the extended due date, the form will be treated as the original filing. There are a few critical things to remember when filing a change or amended return. Be sure to:

  • Only file a Form IL-1120-ST-X after you have filed a processable Illinois Income Tax return.
  • Separate Form IL-1120-ST-X for each tax year that will need to be changed.
  • Not file a Form IL-1120-ST with new figures as a way to amend your return.

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