SALT workaround signed into law, providing tax break to many Illinois taxpayers
Illinois Governor J.B. Pritzker has signed into law legislation that allows pass-through entities to pay an elective tax on income earned or received in the state. The legislation was originally a workaround offered by the IRS to the $10,000 annual cap on deductions for state and local taxes (SALT). Now an Illinois law, this workaround provides a major tax break to many Illinois taxpayers.
Pass-through entities (S-Corporations and Partnerships) can now make an election to pay the individual tax liability generated from the taxable income of the business on behalf of all its shareholders or members. The pass-through entity will receive an income tax deduction on its federal income tax return that is not subject to the $10,000 SALT limitation that applies to individual taxpayers.
S-Corporations and partnerships can make the election to do this each tax year. The elective pass-through entity tax is effective for tax years ending on or after December 31, 2021. The annual election is available until January 1, 2026, or until the federal limitation on the state and local tax deduction no longer applies.