A proposed constitutional amendment that would have impacted income tax rates for many small businesses stalled in the Illinois House.

HJRCA 21 would have imposed an additional 3% income tax rate on net income above $1 million.

Since the majority of small businesses file their tax returns as pass-through entities—reporting business income on personal tax returns—many could have faced higher taxes if this amendment had passed.

The proposed constitutional amendment did not differentiate between business income and a pass-through business’s disbursements to the owner, meaning many small business owners earning far less than $1 million could have seen higher taxes.

The amendment also failed to take into account the impact of inflation and did not include an annual inflation adjustment—thus, as inflation occurs, more and more small businesses would have become subject to the higher rates.

Small business owners could also have been hit with the higher tax rates upon the sale of their businesses if the sales pushed their annual income above $1 million for the year.

NFIB Illinois State Director Noah Finley testified against the proposed constitutional amendment in committee, stating:

“The majority of small businesses file their taxes on personal tax returns, making any income above this threshold amount subject to this higher tax rate. This means that smaller businesses could get hit with this tax increase even as larger, multinational corporations get a pass. Since this bill is not indexed to inflation, more pass-through businesses will be hit by this surcharge every year—meaning more Main Street businesses will be left paying the tab every year for the state’s fiscal decisions.”

The measure lacked the votes to pass in the House before the deadline to get it on this fall’s ballot, but proponents have indicated that they will continue their efforts to pass a similar amendment in the future.

Reach out to your legislators and tell them how this would impact your small business!