What Is the Illinois Individual Income Tax Return IL-1040 Form?

The IL-1040 Form is the official document that taxpayers fill out to determine taxes owed or refund expected. It’s divided into sections and is the foundation of individual income tax returns. Filling out this form can be a complicated process, especially when individuals have a change in income, a move, or other status change. What is the Illinois individual income tax return IL-1040 Form and what type of information is needed to maximize any tax refunds and minimize potential issues and errors?

Who Is Eligible to File an IL-1040 Form?

Taxpayers are eligible to file Form IL-1040 if they have not previously filed an individual income tax return for the year, are an established Illinois taxpayer or have a current Illinois driver’s license or state ID, and have a Social Security number or taxpayer identification number. 

Preparing to fill out Form IL-1040 includes several materials:

• Copy of your federal income tax return. 
• Income statements — W-2 and 1099 forms.
• Tax returns filed in other states, if any.
• Property number and property tax paid, if any.
• Receipts for education and moving expenses, if qualified.
• Bank routing and account number for direct deposit of refunds.

Students aren’t exempt from taxes, but some scholarships are exempt from both state and federal taxes. Students who have to file a federal return must also file a state return. If a student’s Illinois base income is higher than their Illinois exemption allowance, they also must file a return. Students who attend classes in another state may need to pay taxes to that state, but each state has different tax laws.

Taxpayers who are age 65 or older on the last day of the tax year can check a box for an additional $1,000 exemption, which is in addition to the standard $2,325.

How Does Residency Apply for Tax Purposes?

Illinois residents who move to another state or have residences in another state may have a tax liability to Illinois, especially with more people than ever working remotely. The Illinois Department of Revenue and revenue departments in other states have audited higher net worth former residents who have moved to states that don’t impose a state income tax.

Some people who move but have ties to Illinois, such as owning a home or business, may still be considered residents. Illinois law recognizes residents as people who are permanently in Illinois or have a domicile in Illinois but are temporarily absent, like spending winter in Florida, for example. People may only have one residence, so snowbirds would likely be considered Illinois residents in another state on a transitory or temporary basis. Illinois residents may be able to claim a homestead exemption for property tax reductions.

In general, people who spend nine months or more during the tax year in a state are considered residents of that state. If someone is gone from Illinois for a year, they likely would be viewed as a nonresident. People who plan to switch residency to another state, especially those with higher net worth moving to a state without income taxes, may have to present documentation to prove their move. Documentation could be in the form of automobile and driver’s license registrations, voter registration, state licenses like fishing or professional organizational memberships, medical provider records, tax returns for a different state, insurance policies, and bank records.

Higher net value individuals, especially those with ownership in businesses, might be audited if they change residence. Anyone considering changing residence should consult with a tax professional to ensure that establishing residency in another state is met and can be proven in case of an audit.

What Are the Tax Rates?

State and federal tax laws and rates vary, so taxpayers may get a state refund and owe federal taxes, or vice versa, depending on their situation. State taxes are filed after federal Form 1040s are filed.

Illinois state income tax is 4.95% of net income, which has been in effect since July 1, 2017. This amount is withheld from paychecks, Illinois lottery winnings for each payment over $1,000 for residents and nonresidents, and other gambling winnings paid to Illinois residents if they are subject to federal income taxes. The standard personal exemption allowance is $2,325, but those 65 and older may claim an additional $1,000.

What Tax Assistance Is Available?

Households with lower and moderate-income may qualify for assistance in person or virtually for preparing their tax returns. The Illinois Department of Revenue offers tax assistance resources and educational material about identity theft and recent tax news and events. If your income is low or dropped over the last year, you may qualify for the Illinois earned income tax credit (EITC), allowing taxpayers with low or modest incomes to receive larger tax refunds. The EITC reduces the amount of total taxes owed.

How Do I Correct Errors on Form IL-1040?

Taxpayers who have made errors or forgot to include income, withholding, or other credits for their original state or federal return cannot re-file the IL-1040. Instead, they must file the IL-1040-X, Amended Individual Income Tax Return. Amended state tax returns may also be needed if the Internal Revenue Service (IRS) adjusted your federal return after it was filed.

Documents likely required for an IL-1040-X, which is filed after the amended federal return is processed, include:

• Copy of your original IL-1040 for the tax year to be amended.
• Copy of your U.S. Form 1040-X or U.S. Form 1045.
• Proof of federal finalization of the 1040 or 1045.
• Transcript of the IRS or examiner’s report for the account.

Our Team Can Help

Our tax professionals can navigate the complex laws and regulations as well as your unique tax situation. Pasquesi Shepard staff will help you decide what needs to be included in your tax return and what isn’t necessary. We can review your current and future tax return needs, help you prepare for filing, and help you avoid audits while meeting financial goals. If you have questions about Form IL-1040, please contact us. We’ll be happy to ensure you properly file all forms and take advantage of tax laws that minimize your taxes owed.