Illinois retirement taxes at a glance (2026)
| State income tax | Flat 4.95%Illinois has a flat 4.95% income tax. |
|---|---|
| Social Security | Not taxedIllinois does not tax Social Security or railroad retirement benefits. |
| Pensions | Not taxedIncome from qualified employee benefit plans, including private pensions, is subtracted from Illinois income with no dollar limit. |
| 401(k) and IRA withdrawals | Not taxedDistributions from IRAs, 401(k) plans and self-employed retirement plans that are federally taxed are subtracted from Illinois income. |
| Government pensions | Not taxedGovernment retirement plans and state or local government deferred compensation plans are fully subtracted. |
| Military retirement pay | Not taxedMilitary retirement pay is not taxed in Illinois. |
| Estate tax | Yes, above $4,000,000Illinois taxes estates with a gross value above $4 million, at rates up to 16%. |
| Inheritance tax | No |
| Property tax help for seniors | Homeowners 65+ get a senior homestead exemption of up to $8,000 of assessed value in Cook County ($5,000 elsewhere). The senior assessment freeze applies to household income up to $65,000, rising to $75,000 in 2026. |
| Sales tax | State sales tax is 6.25%; the average combined state and local rate is about 8.96%. |
Recent changes and good to know
- Illinois retirement income subtraction is on Form IL-1040 Line 5; see IDOR Publication 120.
- Senior assessment freeze income limit rises from $65,000 to $75,000 in 2026.
How to lower your retirement taxes in Illinois
- Mix your income sources. Roth IRA withdrawals are tax-free at the federal level and generally in Illinois too, so a Roth conversion before retirement can cut state tax later. Try the Roth conversion calculator.
- Watch federal Medicare costs. Large IRA withdrawals can raise your Medicare premiums. Check the 2026 IRMAA brackets.
- Think about your heirs. See what your IRA will really cost your family with the Family Tax Rate calculator.
- Comparing states? These have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
Frequently asked questions
Does Illinois tax retirement income?
No for most retirees: Illinois exempts Social Security, pensions, IRAs and 401(k)s, but it has high property taxes and a $4 million estate tax.
Does Illinois tax Social Security?
Illinois does not tax Social Security or railroad retirement benefits.
Does Illinois tax pensions?
Income from qualified employee benefit plans, including private pensions, is subtracted from Illinois income with no dollar limit.
Does Illinois tax 401(k) and IRA withdrawals?
Distributions from IRAs, 401(k) plans and self-employed retirement plans that are federally taxed are subtracted from Illinois income.
Does Illinois tax military retirement pay?
Military retirement pay is not taxed in Illinois.
Does Illinois have an estate or inheritance tax?
Illinois taxes estates with a gross value above $4 million, at rates up to 16%.
Sources (last verified 2026)
- 2025 Form IL-1040 Instructions (Line 5) — Illinois Department of Revenue (2025)
- Illinois State Tax Guide — AARP (2026-03-16)
- State Individual Income Tax Rates and Brackets, 2026 — Tax Foundation (2026-02-17)
- Retirement Taxes: How All 50 States Tax Retirees — Kiplinger (2026)
Educational content only, not tax, legal or investment advice. Plans and tax laws change; confirm details with your employer's plan documents or your state revenue department. Smart Financial Lifestyle is not affiliated with any employer named on this site.