Illinois Extends State and Local Tax (SALT) Workaround, Providing Continued Tax Relief for Businesses
December 18, 2025 – Illinois Governor JB Pritzker signed legislation on December 12, 2025, extending a crucial workaround for the state and local tax (SALT) cap, offering continued tax benefits to illinois pass-thru businesses. This extension prevents the automatic expiration of the provision at the end of 2025,ensuring ongoing financial relief for a critically important portion of the state’s business community.
Understanding the Illinois SALT Workaround
Formally known as the Pass-Through Entity tax (PTET), the workaround allows Illinois pass-through businesses – such as S corporations, partnerships, and limited liability companies – to deduct their state income taxes on their federal tax returns. This is notably valuable given the federal government’s $10,000 cap on SALT deductions,which disproportionately impacts residents of high-tax states like Illinois.By enabling a federal deduction for state taxes paid,the PTET effectively mitigates the impact of the federal limitation.
Context within Broader Tax Legislation
The extension of the SALT workaround was included as part of a larger tax omnibus bill passed by the Illinois General Assembly. This broader legislation also addressed the state’s alignment with recent federal tax changes, specifically decoupling Illinois from new federal bonus depreciation provisions enacted by Congress earlier in 2025. Decoupling from federal bonus depreciation means Illinois will not automatically conform to the federal rules, allowing the state to determine its own depreciation policies.
Economic Impact and Savings
The Taxpayers’ Federation of Illinois estimates that the SALT workaround generates approximately $500 million in annual savings for Illinois businesses. This substantial figure underscores the importance of the provision in supporting economic activity and maintaining a competitive business environment within the state. Without the extension, Illinois businesses would have faced a significant increase in their tax liabilities starting in 2026.
Original Implementation and Sunset Clause
When the PTET was initially enacted, the Illinois General Assembly included a sunset clause, intending for the provision to expire at the end of 2025 unless proactively extended. This sunset clause served as a mechanism for future review and potential adjustments to the policy. The recent legislative action demonstrates the General Assembly’s commitment to maintaining this beneficial tax structure for Illinois businesses.
Sources:
* Illinois General Assembly: https://www.ilga.gov/ (For legislative bill details – specific bill number to be added when available)
* Taxpayers’ Federation of Illinois: https://www.tfi.org/
* Internal Revenue Service (IRS): https://www.irs.gov/ (For federal tax data)
Keywords: Illinois SALT workaround, Pass-Through Entity Tax (PTET), Illinois taxes, state and local taxes, tax relief, Illinois business tax, federal SALT cap, bonus depreciation, Illinois tax legislation, JB Pritzker.