IDOR Waives Late Estimated Payment Penalty for Newly Enacted Entity-Level Tax

The Illinois Department of Revenue (IDOR) will not assess penalty for late estimated payments due for tax years ending before December 31, 2022, for partnerships and subchapter S corporations who elect to pay the new pass-through entity-level tax.

Public Act 102-0658, enacted August 27, 2021, creates a pass-through entity-level tax for partnerships and subchapter S corporations allowing partners and shareholders to work around the federal cap on the deduction for state and local taxes effective for tax years ending on or after December 31, 2021. A partnership or subchapter S corporation who elects to pay the entity-level tax is required to make quarterly estimated payments if the expected tax due is more than $500 or incur late estimated payment penalties. However, IDOR will waive late estimated payment penalties related to an election to pay the pass-through entity-level tax for tax years ending before December 31, 2022.

For taxpayers electing to pay the pass-through entity-level tax, IDOR encourages making voluntary prepayment of the pass-through entity-level tax to reduce any tax payment due when the return is filed. These prepayments can be made

• electronically using MyTax Illinois or ACH Credit or
• by mail using 2021 Form IL-1065-V, Payment Voucher for Partnership Replacement Tax or 2021 Form IL-1120-ST-V, Payment Voucher for Small Business Corporation Replacement Tax.

The penalty relief only applies to partnerships and subchapter S corporations that elect to pay pass-through entity-level tax. Individual partners and shareholders of these entities are not eligible for the penalty relief. However, partners and shareholders may claim a tax credit against their own tax liability for distributive shares of the pass-through entity-level tax credit they receive and may adjust their estimated payments accordingly.

Update to article published 09/09/2021.