How Illinois taxes retirement income

Some 2026 figures pending confirmation Tax year 2026 · research last updated October 2, 2026

Illinois doesn't tax Social Security benefits.
Exclusions and subtractions for retirement income (details below):
- Social Security and retirement income subtraction.
Rates for 2026: 4.95% flat rate.

At a glance

Income tax	Yes
Rates (2026)	4.95% flat rate
Starts from	Federal adjusted gross income (AGI)
Personal exemption	$2,925 per person
Age 65 and older	$1,000 extra exemption per person
Social Security	Not taxed
Retirement income exclusions	1 (see below)
Roth conversions	Generally not taxed (see below)
Capital gains	Taxed like other income
Local income tax	None

Illinois doesn't tax Social Security benefits.

Pensions, IRAs and 401(k)s

Social Security and retirement income subtraction (IL-1040 line 5)

Applies to: Social Security, Railroad Retirement, pensions, annuities, IRA distributions, 401(k) distributions, SEP plans, government pensions, military pensions, 457(governmental), Roth conversions

Unlimited subtraction, no age requirement, of the federally taxed portion of: qualified employee benefit plan distributions (incl. 401(k)), IRA distributions (including amounts converted/rolled over to a Roth IRA), self-employed (SEP/Keogh) plans, Social Security and railroad retirement benefits, government retirement and disability plans (incl. military), state/local government 457 plans, capital gains on employer securities in a lump-sum distribution, U.S. retirement bond interest. NOT subtractable: non-qualified deferred compensation and non-government disability plans, third-party sick pay, income taxed under federal 10-year averaging, retirement payments to retired partners/beneficiary shares reported on K-1-P/K-1-T.

Roth conversions

Illinois generally doesn't tax Roth conversions; the conditions are in the rules above.

Capital gains

Taxed like other income, at the rates above.

Credits and relief for older residents

Illinois Property Tax Credit: nonrefundable 5% of Illinois property tax paid on principal residence; not allowed if federal AGI exceeds $500,000 (MFJ) / $250,000 (others).
Exemption allowance: +$1,000 additional exemption for taxpayer and/or spouse age 65+ (and +$1,000 if legally blind); subject to the same AGI cliff.

More detail from our research notes

Flat 4.95% on net income (base income minus exemption allowance) since mid-2017; not indexed. Illinois has no standard deduction and no itemized deductions. Exemption allowance: $2,850 per exemption for 2025, $2,925 for 2026 (indexed; taxpayer, spouse, dependents), plus $1,000 for each taxpayer/spouse 65+ and $1,000 each if blind. Roth conversions: excluded from Illinois tax because the converted amount is a federally taxed IRA distribution — IDOR Pub-120 explicitly lists 'converting a traditional IRA to a Roth IRA' among subtractable retirement income. Consequently a retired household with only SS/pension/IRA income generally owes no Illinois income tax; interest, dividends, capital gains, rental income and wages remain taxable at 4.95%. Illinois taxes interest on non-Illinois municipal bonds and some Illinois ones (addback), and exempts U.S. Treasury interest. 2026 legislation: P.A. 104-0468 (FY2027 omnibus, SB 3019, eff. July 1, 2026) changes nothing in the rate, exemptions or the Line 5 retirement subtraction; for tax years ending on or after Dec. 31, 2026 it adds back federally excluded IRC 1202 (QSBS) gain for individuals (IDOR Informational Bulletin FY 2027-01). Pub-120 (R-12/25) confirms early distributions from qualified plans and IRAs (and IRC 402-408 plans such as 403(b)) qualify for the Line 5 subtraction.

Pending confirmation

These points were still being confirmed against Illinois's published 2026 forms when this page was built. Most are waiting on forms the state publishes around the turn of the year.

1 item

2026 IL-1040 not yet published; the $2,925 exemption for 2026 comes from IDOR Q&A 851 (primary) and matches the 2026 IL-700-T withholding. Confirm on the 2026 IL-1040 instructions (expected Dec 2026, https://tax.illinois.gov/forms/incometax/currentyear/individual.html).

Sources

Every figure comes from these documents, mostly the state's own forms, instructions and statutes.

2025 Schedule ICR instructions, Section A property tax credit 5%, AGI limit $500,000 MFJ / $250,000 other (research/states/itemized.json); Schedule ICR instructions: property tax credit AGI limitshttps://tax.illinois.gov/forms/incometax/currentyear/individual/il-1040-schedule-icr-instr.html
Exemption allowance $2,850 (2025) / $2,925 (2026), +$1,000 age 65/blind, $250k/$500k AGI limithttps://tax.illinois.gov/questionsandanswers/answer.851.html
Pub-120 Retirement Income (rev. Dec 2025): subtractable/non-subtractable retirement income, IRA incl. Roth conversionshttps://tax.illinois.gov/research/publications/pubs/retirement-income.html
2025 IL-1040 instructions Step 3, Line 5https://tax.illinois.gov/forms/incometax/currentyear/individual/il-1040-instr/step-3---base-income.html
2025 IL-1040 instructions (full)https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/incometax/documents/currentyear/individual/il-1040-instr.pdf
IDOR Informational Bulletin FY 2027-01 (July 2026): P.A. 104-0468 changes = QSBS (IRC 1202) addback and PTE election onlyhttps://tax.illinois.gov/research/publications/bulletins/fy-2027-01.html
35 ILCS 5/208: property tax credit 5% of principal-residence property tax; none above AGI $500,000 joint / $250,000 otherhttps://www.ilga.gov/documents/legislation/ilcs/documents/003500050K208.htm
Pub-120 (R-12/25), Retirement Income: Line 5 covers IRC 402-408 plans, IRAs incl. Roth conversions, and early distributionshttps://tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/pubs/documents/pub-120.pdf

Taxtirement's Illinois calculation is also checked against a second, independent implementation on 1,000 random households. How we check our numbers.

See your own years. Taxtirement applies these Illinois rules, and the federal and Medicare rules, to your household for every year of retirement, and shows the calculation behind each number. Coming November 2026 for iPhone, iPad and Mac.

This page summarizes Illinois's 2026 rules as Taxtirement applies them, for education and planning. It isn't tax advice, and it doesn't cover every situation (for example part-year residents, businesses or military-only provisions). Rules change; check the state's current instructions, or a tax professional, before you act. Spotted something wrong? Tell us.