Larger tax deductions begin in Illinois under new budget

The Illinois House approved a $53.1 billion state budget last week that, among other things, makes tax credits more generous. Illinois’ larger tax deduction, called the standard exemption, saves families about $69. The budget proposal awaits approval from Gov. JB Pritzker.

Illinois’ Bigger Tax Credit: What is it?

The standard exemption has increased every year since 2011 in line with the rise in prices. Last year, lawmakers quietly reduced this tax credit by decoupling it from inflation after the consumer price index (CPI) rose significantly due to supply chain issues related to the COVID-19 pandemic.

But the 2025 spending plan approved by the House last week restores funding to tie the standard exemption to inflation, resulting in a larger tax credit. Under the new spending plan, taxpayers can claim a standard exemption of up to $2,775 in tax year 2024, up from $2,425 in 2022 and 2023.

For a family of four, this means saving over $69 in taxes. The cost of this larger tax credit in Illinois is estimated at $172 million, nearly double the standard exemption amount that Gov. Pritzker proposed in his 2025 budget plan in February.

In his budget proposal, Governor Pritzker asked lawmakers to increase the exemption amount to $2,550. That increase would have cost about $93 million.

If lawmakers hadn’t changed the standard exemption to accommodate last year’s increase in inflation, it would have been $2,625 in 2023. This means that the Consumer Price Index will increase by 8%, the highest increase in inflation since 1981.

Lawmakers decided to keep the standard deduction at $2,425 for 2023, freeing up $114 million for other budget needs.

The standard exemption is designed to reduce a taxpayer’s adjusted gross income.

Other tax relief for residents

Another tax relief offered by the $53.1 billion state budget proposal is eliminating the state grocery tax. Because these tax relief directly benefits local communities, the proposal includes a provision allowing local governments to generate their own grocery tax of up to 1%.

Governor Pritzker first called for a repeal of the grocery tax in his budget speech in Springfield earlier this year. According to the governor, repealing the grocery tax would provide significant relief to families hit hard by rising prices. Governor Pritzker referred to the 1% tax as a “regressive tax” that Illinois does not need.

“Losing inflation from 4% to 3% for families is the right thing to do, even if it only puts a few hundred dollars back in their pockets,” the governor previously said.

Currently, a 1% grocery tax applies to all items consumed outside the location where they are sold.