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State retirement tax · Illinois

Retirement tax rules for Illinois residents (2026 guide)

Illinois has a flat 4.95% income tax, but virtually all retirement income is exempt on IL-1040 Line 5 — so a typical retiree owes about $0. Here's what's exempt, what isn't, and how the numbers shake out.

Last reviewed July 17, 2026

Editorial review pending — see editorial process

Rate on retirement income

~0%*

Taxes Social Security?

No

Approx. tax on $90k retirement income

$0

Pension carve-outs

Full

*Effective rate on qualified retirement income (Social Security, pensions, 401(k)/IRA), which Illinois exempts on IL-1040 Line 5. The flat 4.95% rate still applies to non-retirement income — taxable brokerage gains, rental income, and wages.

Illinois has a flat 4.95% state income tax — but for retirees that headline rate is misleading. Virtually all retirement income is exempt on IL-1040 Line 5, so most retirees living on Social Security, a pension, and 401(k) or IRA withdrawals owe close to $0 in state income tax. The flat rate only reaches income that was never part of a retirement plan — taxable brokerage gains, rental income, wages, and non-qualified plans. That makes Illinois one of the most retirement-income-friendly states in the country. Other retiree costs — property and sales taxes especially — vary widely by state, so weigh those separately.

What Illinois taxes (and what it doesn’t)

Illinois's 4.95% flat tax applies to your base income, but virtually all retirement income is exempt on IL-1040 Line 5 — so qualified retirement income passes through untaxed, and only income that was never part of a retirement plan is taxed at the flat rate. The two lists below spell out exactly what's exempt and what isn't.

Exempt (not taxed as retirement income)

  • Social Security benefits
  • Qualified pensions — private, government, military, and railroad retirement
  • 401(k), 403(b), and governmental 457 plan distributions
  • IRA and SEP distributions

Still taxed at the flat 4.95%

  • Taxable brokerage interest, dividends, and capital gains
  • Rental income
  • Wages and self-employment or part-time work
  • Non-qualified deferred compensation and similar non-retirement plans

State-specific note

Flat 4.95% income tax, but Illinois subtracts virtually all retirement income on IL-1040 Line 5 — Social Security, qualified pensions, 401(k)/403(b)/457 and IRA/SEP distributions (including amounts converted to a Roth IRA), plus government, military, and railroad retirement. A typical retiree owes about $0. The 4.95% still applies to non-qualified income: taxable brokerage interest/dividends/capital gains, rental income, wages, and non-qualified deferred comp.

A worked example

Worked example. An Illinois retiree with $30,000 of Social Security plus $60,000 of pension and 401(k)/IRA withdrawals owes $0 in Illinois income tax — that retirement income is exempt on IL-1040 Line 5. Now give that same retiree $20,000 of dividends and capital gains from a taxable brokerage account: that $20,000 was never retirement-plan income, so it's taxed at the flat 4.95% — on the order of $990/year before any standard deduction or lower-bracket exemption — while the $90,000 of retirement income stays untaxed.

Should you relocate?

For a retiree living mostly on Social Security, a pension, and 401(k)/IRA withdrawals, leaving Illinois to cut state INCOME tax makes little sense — that income is already effectively untaxed here. If you're weighing a move for taxes, the numbers that actually differ are property and sales taxes (which vary widely by state), not the income-tax rate.

See how Illinois state tax shapes your retirement plan

The calculator's Taxes tab models Illinois the way the state actually does — qualified retirement income (SS, pensions, 401(k)/IRA) is treated as effectively untaxed. Run your specific numbers and see the year-by-year tax forecast.

Run my numbers

Frequently asked

  • Does Illinois tax my Social Security?

    No. Illinois fully exempts Social Security benefits — they're exempt on IL-1040 Line 5 along with the rest of your retirement income, so they never reach the 4.95% rate.

  • Does Illinois tax 401(k), IRA, and pension withdrawals?

    No — not qualified ones. Distributions from 401(k)/403(b)/457 plans, IRAs and SEPs, and qualified pensions (private, government, military, railroad) are exempt on IL-1040 Line 5, so a retiree living on those sources typically owes about $0 in Illinois income tax. See the state-specific note above for the exceptions — early distributions and non-qualified plans can be treated differently.

  • What's the effective state tax rate on my retirement income in Illinois?

    Effectively about 0%. Illinois's flat 4.95% rate applies only to income that isn't exempt on IL-1040 Line 5 — taxable brokerage gains, rental income, wages, and non-qualified plans. Qualified retirement income is not taxed by the state.

  • Are Roth conversions taxed in Illinois?

    Generally no. A conversion from a traditional IRA or 401(k) to a Roth is a retirement-plan transaction, and Illinois doesn't tax qualified retirement income — so the conversion is typically free of Illinois income tax. Confirm the treatment if you convert before reaching retirement age. (You still owe federal tax on the conversion.)

  • Are pension benefits taxed differently in Illinois?

    Illinois treats qualified pensions the same generous way as other retirement income: private, government, military, and railroad retirement are all exempt on IL-1040 Line 5. There's no separate bracket or income limit for pensions — qualified pension income is simply not taxed by the state.

  • Does this apply to property tax too?

    No — this page covers state INCOME tax only, and Illinois's income-tax treatment of retirees is unusually favorable. Property and sales taxes are a separate question and vary widely by state; property tax in particular is set locally, so check your county assessor for your own number.

Primary sources

Illinois-specific rules are sourced from the state revenue department's own publications (listed first); the rate table below is cross-checked against the national roundups. We re-verify annually.

Related reading

Yearfold is a financial-education tool. It is not a registered investment adviser and does not provide personalized investment, tax, or legal advice. Results are probabilistic projections based on historical data and stated assumptions; they are not guarantees. Methodology

State tax law changes. We update on the cadence noted in methodology; consult your state’s revenue department or a fee-only tax professional for definitive guidance on your situation.