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End of payroll-tax cut hurts, as does Illinois’ income-tax hike

A collective sigh of relief over averting the fiscal cliff is expected to be short-lived for Illinois workers, whose incomes will be dented by the deal — and a state income-tax increase that was approved in 2011.

The 2-percentage-point hike in the state income tax went somewhat unnoticed by everyday Illinoisans because of an offsetting reduction in the federal payroll tax.

But under the fiscal-cliff compromise approved Tuesday night, the payroll tax will return to 6.2 percent from 4.2 percent, where it has been since 2011.

“Now the Illinois taxpayer will carry the full brunt of the individual tax increase of 2011, as well as seeing the payroll tax go back up,” said Illinois Chamber of Commerce President Doug Whitley. “So, in essence, they will see the full effect of two tax increases in their paychecks.”

The payroll-tax change is projected to cost the average U.S. worker about $1,000.

“The federal payroll-tax reduction was a way to try to stimulate the economy during the recession,” Whitley said. “It was intended to try to keep more cash in the hands of consumers. But it was intended all along to be a temporary measure . . . ”

Illinois’ individual income-tax rate was increased from 3 percent to 5 percent in 2011.

The rate is supposed to decrease to 3.75 percent in 2014 and go back to 3 percent in 2015.

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