Illinois Retirement Income Tax
What does Illinois tax in retirement, and what does it leave alone? Every piece below can be linked to, so it opens in a window on your reader's screen, current as of the record. No form to fill in.
2026 law · Reviewed September 5, 2026 · The full page, with methodology and sources · the terms · All tools
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Retirement income and other income in, with filing status and ages; the Illinois bill, what the subtraction is worth, and the effective rate out. In a frame it carries no cookies, no tracking, and a visible link back to the methodology. Your site has to allow frames; most do. The link that opens it in a small window is on the professionals page.
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- In plain words.
- Illinois has a flat income tax rate, but it does not tax Social Security, pensions, or withdrawals from IRAs and 401(k)s. It does tax wages, interest, dividends, capital gains, and rent. This tool takes both kinds of income and shows the Illinois bill, what the retirement exemption is worth, and the law behind each line.
- Why it matters.
- People weighing a move, or a CPA answering the question every January, restate this from memory. The table here cites the statute for each line, and the calculator shows what it is worth to a particular household.
- An example.
- A couple, both over 65, with $100,000 of Social Security and IRA withdrawals and $20,000 of interest and dividends owes Illinois about $600. If retirement income were taxed like wages, the bill would be about $5,500.
- Where it stops.
- It assumes a full-year Illinois resident and no credits. An annuity you bought yourself, or deferred pay from a private employer, is taxed and belongs with the other income.
The facts
Six quotable sentences on Illinois and retirement income, 2026.
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- Illinois taxes individual income at a flat 4.95% (35 ILCS 5/201(b)(5.4)), on net income after a $2,925 exemption per person for 2026, plus $1,000 for each taxpayer or spouse 65 or older.
- Illinois does not tax Social Security benefits, pensions from qualified employee plans, IRA and SEP withdrawals (including a Roth conversion), government and military retirement, governmental § 457 deferred compensation, or Railroad Retirement: the federally taxed amounts are subtracted from the base (35 ILCS 5/203(a)(2)(F) and (L)).
- It does tax wages, interest, dividends, capital gains, rents, and retirement income that is not from a qualified plan: a nonqualified annuity, private deferred compensation, third-party sick pay.
- Example: a couple, both over 65, with $100,000 of Social Security and IRA withdrawals and $20,000 of interest and dividends pays Illinois $601. Were retirement income taxed like wages, the bill would be $5,551; the subtraction is worth $4,950 a year.
- Early distributions from qualified plans and IRAs are subtracted as well; the federal 10 percent penalty is federal only.
- Illinois has had the subtraction, in its present shape, since the 1980s, and a proposal to tax retirement income has not advanced in the General Assembly; the flat rate has stood at 4.95% since July 2017.
What Illinois taxes in retirement
Every common income type, subtracted or taxed, cited.
The button shows exactly what your reader sees when they click the link. Paste the link where a link goes; it opens this table in a small window, always current as of the record, with the attribution and a link to the full page. Nothing to copy out, nothing to update later.
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| Income | Illinois treatment | Note | Authority |
|---|---|---|---|
| Social Security benefits | Subtracted (not taxed) | The federally taxed portion, from Form 1040 line 6b | 35 ILCS 5/203(a)(2)(L) |
| Qualified employee plans: 401(k), 403(b), pensions | Subtracted (not taxed) | IRC §§ 402 through 408 plans, including early distributions | 35 ILCS 5/203(a)(2)(F) |
| IRA and SEP distributions | Subtracted (not taxed) | Including a traditional-to-Roth conversion | 35 ILCS 5/203(a)(2)(F) |
| Government and military retirement and disability | Subtracted (not taxed) | Federal, state, local, and military plans | 35 ILCS 5/203(a)(2)(F) |
| State and local government deferred compensation (§ 457) | Subtracted (not taxed) | Governmental plans only | 35 ILCS 5/203(a)(2)(F) |
| Railroad Retirement | Subtracted (not taxed) | Tier I and Tier II | 35 ILCS 5/203(a)(2)(L) |
| Wages and self-employment income | Taxed at 4.95% | At the flat rate | 35 ILCS 5/201 |
| Interest, dividends, and capital gains | Taxed at 4.95% | Including gains on a home sale above the federal exclusion | 35 ILCS 5/201 |
| Nonqualified annuities and private deferred compensation | Taxed at 4.95% | Not from a qualified plan, so not subtracted | Publication 120 |
| Rental and business income | Taxed at 4.95% | At the flat rate | 35 ILCS 5/201 |
| Third-party sick pay | Taxed at 4.95% | Named by the Department as not subtractable | Publication 120 |
Cite and link.
The clean address, a citation generated from the record so it can never carry a stale review date, and an address for every section so you can point a reader at the exact table or method.
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- Link
- https://consideratecapital.com/tools/illinois-retirement-income-tax
- Citation
- Considerate Capital, "Illinois Retirement Income Tax," reviewed September 5, 2026, https://consideratecapital.com/tools/illinois-retirement-income-tax.
Link to a section
- The calculator https://consideratecapital.com/tools/illinois-retirement-income-tax#calculator
- The facts https://consideratecapital.com/tools/illinois-retirement-income-tax#facts
- What Illinois taxes https://consideratecapital.com/tools/illinois-retirement-income-tax#key-numbers
- How the subtraction works https://consideratecapital.com/tools/illinois-retirement-income-tax#how-it-works
- Methodology https://consideratecapital.com/tools/illinois-retirement-income-tax#methodology
- Sources https://consideratecapital.com/tools/illinois-retirement-income-tax#sources
- Revision history https://consideratecapital.com/tools/illinois-retirement-income-tax#revision-history
Everything here reads from one reviewed record, so a copied piece carries its year and its review date. When the law moves, the embed updates by itself; a copied table or chart keeps the year in its caption. Corrections are welcome through the contact page.