Does Illinois Tax Retirement Income?

No. Illinois does not tax Social Security benefits.

Social Security benefits are not taxed by Illinois.

The Illinois answer is separate from the federal one. Depending on combined income, up to 85% of Social Security benefits can be taxable on the federal return regardless of what Illinois does, so the state rule changes the state line only. Our guide to states that do not tax Social Security shows where Illinois sits among the states that still tax benefits.

No. Illinois does not tax pension income.

Qualified public and private pension income is generally subtracted from Illinois base income.

Illinois uses an income subtraction rather than a small age-based cap. That is why a qualifying distribution can be fully exempt even though Illinois has a 4.95% flat rate on other income.

Public and private pensions, annuities, and retirement-plan distributions do not always get the same treatment. The pension comparison lists which states exempt pensions broadly, partly, or only for certain plans.

No. Illinois does not tax traditional 401(k) and IRA withdrawals.

Qualified IRA, 401(k), and similar retirement-plan distributions are generally subtracted. An early distribution can still qualify; the controlling question is whether the payment comes from a qualifying retirement plan.

Two timing points matter in Illinois. A Roth conversion is taxable in the year it is done, and Illinois starts from federal adjusted gross income, so a large conversion can land in a year when the state exclusion does not cover it. Qualified Roth withdrawals later are generally not taxable at either level. Required minimum distributions follow the same Illinois rules as any other traditional-account withdrawal.

Every state page on this site runs the same retiree profile so the states can be compared: $30,000 of Social Security, $40,000 withdrawn from a traditional 401(k), and a $20,000 private pension, $90,000 in total.

A retiree with $30,000 of Social Security, $40,000 of qualified 401(k) distributions, and a $20,000 qualified pension can generally subtract all $90,000 from Illinois taxable income. Interest, wages, and non-retirement investment income remain outside that retirement subtraction.

Illinois starts with federal AGI of about $85,500. Schedule M subtracts the $25,500 of federally taxable Social Security, the $40,000 qualified 401(k) distribution, and the $20,000 qualified pension, which takes Illinois base income to $0, so the $2,925 personal exemption is not even needed and the state tax is $0. Contrast: a $150,000 lump-sum IRA withdrawal in the same year is also a qualified plan distribution and is subtracted in full, so the Illinois tax is still $0 even though the federal bill on that withdrawal is substantial. The result flips if the $150,000 comes from a nonqualified deferred compensation plan or from selling taxable brokerage assets: none of that qualifies for the retirement subtraction, and after the exemption roughly $147,000 is taxed at 4.95%, about $7,300.

The same $90,000 profile looks different a state line away. The rows below come from the reviewed 51-state table; each state name links to its own guide.

• Indiana: treats Social Security as exempt, pensions as taxed, and 401(k) and IRA withdrawals as taxed, with a top rate of 2.95% and federal civil-service deduction may apply.
• Wisconsin: treats Social Security as exempt, pensions as partially taxed, and 401(k) and IRA withdrawals as partially taxed, with a top rate of 7.65% and up to $24,000 at age 67+; claiming it bars state credits.
• Florida: has no individual income tax at all.

Illinois can be more favorable for retirement cash flow than its general tax reputation suggests. The tradeoff appears elsewhere, especially property taxes and the state estate tax.

Military retirement: Military retirement pay included in federal adjusted gross income is generally subtracted on the Illinois return. See the military retirement tax map for every state's treatment.

Estate and inheritance tax: Illinois imposes a separate estate tax, with a $4 million exclusion amount under current guidance.

Selling a home or investments in Illinois: retirement-income rules do not cover capital gains. See Illinois capital gains tax before selling appreciated property or a brokerage position in the year you move or retire.

• Confirm the exclusion you are claiming. Illinois uses an income subtraction rather than a small age-based cap. That is why a qualifying distribution can be fully exempt even though Illinois has a 4.95% flat rate on other income.
• Part-year residents. If you moved into or out of Illinois during the year, retirement income is generally allocated to the period of residency, and the former state may still tax distributions received before the move. Document the move date, the new domicile, and where each distribution was received.
• Withholding and estimates. Pension and IRA custodians often withhold federal tax but not Illinois tax. If Illinois taxes any part of your retirement income, check whether quarterly estimated payments are needed to avoid an underpayment penalty.
• Federal side. The federal return has its own rules: up to 85% of Social Security can be taxable, the temporary $6,000 federal senior deduction is available for 2025 through 2028 subject to income limits, and Roth conversions are taxed in the conversion year. State exemptions do not change any of that.
• Large one-time distributions. Confirm that each distribution comes from a qualifying retirement plan. Illinois can allow the subtraction even when the payment is early, while income from a nonqualified plan does not receive the retirement subtraction.

Comparing states before a move? Use the retirement taxes by state table and the moving states tax guide, and read retirement tax planning for how distributions, conversions, and a move are sequenced together.