Illinois Tax vs. Arkansas Tax: A Comparative Overview

When it comes to understanding state taxes, both Illinois and Arkansas have distinct systems that impact residents and businesses differently. Whether you’re considering moving, starting a business, or simply want to understand your tax obligations better, knowing the differences between Illinois tax and Arkansas tax is essential.

In this article, we’ll explore key aspects of Illinois tax and Arkansas tax systems, including income tax rates, sales tax, property tax, and key deductions and credits.

Income Tax Rates: Illinois Tax vs. Arkansas Tax

Illinois Income Tax

Illinois has a flat income tax rate, which means all taxpayers pay the same percentage regardless of income level.

• Rate: 4.95% flat rate
• Additional Considerations: Illinois does not impose local income taxes on individuals, but some cities like Chicago impose additional taxes on businesses.

Arkansas Income Tax

Arkansas uses a progressive income tax structure, with rates increasing as income rises.

• Rates: Range from 0.0% to 5.9% across six brackets (2024)
• Bracket Examples:
  • 0.0% on income up to $4,499
  • 2.0% on income up to $8,899
  • 5.9% on income above $84,000
• Additional: Arkansas allows for various deductions and credits that can reduce tax liability.

Summary

Illinois tax favors simplicity with a flat tax approach, while Arkansas tax offers a tiered system that can benefit lower-income residents but results in higher rates for wealthier taxpayers.

Sales Tax Comparison

Illinois Sales Tax

• State Rate: 6.25%
• Local Taxes: Vary across counties and municipalities, with combined rates reaching up to 11%.
• Application: Applies to most goods and some services.

Arkansas Sales Tax

• State Rate: 6.5%
• Local Rates: Local jurisdictions can add up to 7.5%, leading to combined rates as high as 11.5%.
• Application: Applies broadly to goods and some services.

Sales Tax Highlights

Arkansas has a slightly higher base state sales tax than Illinois. However, combined rates in both states can vary widely depending on local taxes. Consumers should check local rates to understand their total tax burden on purchases.

Property Tax: Illinois vs. Arkansas

Illinois Property Tax

• Effective Rate: Approximately 2.16% of home value—the highest in the nation.
• Assessment: Conducted at the county level; rates and assessment methods vary.
• Impact: High property taxes can significantly impact homeowners and businesses.

Arkansas Property Tax

• Effective Rate: Around 0.63% of home value, considerably lower than Illinois.
• Assessment: Property is assessed annually at the county level.
• Relief Programs: Includes homestead exemptions that reduce taxable value for qualifying homeowners.

Summary

Illinois taxpayers face some of the highest property tax rates nationally, whereas Arkansas offers a lower property tax burden, making it attractive for homeowners concerned with ongoing property taxes.

Deductions, Credits, and Other Tax Considerations

Illinois Tax Benefits

• Property Tax Credit: Provides a credit against income tax based on property taxes paid.
• Education Tax Credit: Offers relief to taxpayers paying for qualified education expenses.
• Standard and Itemized Deductions: Illinois covers some federal deductions, with fewer state-specific exemptions.

Arkansas Tax Benefits

• Earned Income Tax Credit (EITC): Arkansas offers a state EITC, which is a percentage of the federal earned income credit.
• Homestead Exemption: Reduces the taxable value of a primary residence.
• Personal Exemptions and Deductions: More extensive than Illinois; taxpayers can often save through various credits for dependents, education, and more.

Which State Has the Better Tax System?

Determining whether Illinois tax or Arkansas tax is better depends heavily on individual circumstances such as income level, property ownership, and spending habits. Here are some general takeaways:

• For simplicity: Illinois’ flat income tax might be easier to navigate.
• For lower-income residents: Arkansas’ progressive income tax with credits may offer more benefits.
• For homeowners: Arkansas generally has lower property taxes, increasing affordability.
• For shoppers: Both states can have high combined sales tax rates, depending on local jurisdictions.

Conclusion

Both Illinois tax and Arkansas tax systems have their strengths and challenges. Illinois offers a flat income tax and robust credit programs but comes with higher property taxes. Arkansas provides a progressive tax system with more deductions and generally lower property taxes, but its tax code can be more complex.

When choosing between Illinois and Arkansas, it’s essential to consider your unique financial situation and which tax environment aligns with your lifestyle and economic goals.

Understanding how Illinois tax compares to Arkansas tax can help you make informed decisions about residency, employment, and business opportunities.