The Illinois House recently approved a $53.1 billion state budget that includes a more generous tax credit for residents. This increase in the standard exemption will allow families to save approximately $69. The budget now awaits approval from the Governor.
What is the Bigger Tax Credit?
The standard exemption in Illinois has been adjusted annually for inflation since 2011. However, last year, lawmakers decoupled this exemption from inflation after a significant rise in the consumer price index (CPI) due to COVID-19-related supply chain disruptions. The new 2025 budget reinstates the connection between the exemption and inflation, resulting in a higher tax credit. Under this plan, taxpayers can claim a standard exemption of up to $2,775 for the 2024 tax year, an increase from $2,425 in previous years. This adjustment is expected to provide over $69 in tax savings for a family of four and is estimated to cost $172 million, nearly double the increase proposed by the Governor in February.
The Governor initially proposed raising the exemption to $2,550, which would have cost around $93 million. Had the lawmakers not decoupled the exemption from inflation last year, it would have reached $2,625 in 2023, reflecting an 8% increase in the CPI—the highest inflation rate since 1981. By keeping the exemption at $2,425 for 2023, lawmakers were able to reallocate $114 million for other budgetary needs.
The standard exemption is designed to reduce taxpayers’ adjusted gross income.
Additional Tax Relief for Residents
The state budget proposal also includes the elimination of the state grocery tax. This measure, benefiting local communities directly, allows municipalities to implement their own grocery tax of up to 1%. The Governor initially proposed removing the grocery tax during a budget address earlier this year, arguing that it would provide significant relief to families struggling with rising prices. The Governor described the 1% grocery tax as a “regressive tax” that Illinois could do without.
“If it reduces inflation for families from 4% to 3%, even if it only puts a few hundred dollars back in their pockets, it’s the right thing to do,” the Governor stated.
Currently, the 1% grocery tax applies to all items intended for consumption off the premises where they are sold.