Illinois is one of the most retiree-friendly states in the country when it comes to income tax. Unlike most states, it fully exempts Social Security, qualified pensions, and IRA and 401(k) distributions from its 4.95% income tax. That means the bulk of a typical retiree’s income escapes state tax entirely. This calculator shows exactly how much Illinois exempts — and reminds you of the federal tax you still owe on the same income.
How it works
Illinois starts from federal income, then subtracts retirement income:
- Exempt retirement income. Social Security benefits, qualified pension payments, and IRA/401(k) distributions are subtracted from Illinois base income — Illinois taxes none of them.
- Other income. Any income that is not from a qualified retirement source (a part-time wage, taxable interest, dividends, capital gains) remains in Illinois base income.
- Illinois tax. The flat 4.95% applies only to that other income, after the personal exemption.
- Federal contrast. Traditional pension and IRA/401(k) withdrawals are federally taxable as ordinary income, and up to 85% of Social Security can be federally taxable, so your federal bill is usually much larger than your Illinois bill.
Tips and example
A retiree receiving $30,000 in Social Security, $25,000 from a pension and $15,000 from a 401(k) — $70,000 total — pays $0 in Illinois income tax on all of it, because every dollar comes from an exempt retirement source. If the same retiree also earns $10,000 from part-time work, Illinois taxes only that $10,000 (minus the personal exemption) at 4.95%, roughly $354.
Federally, the story differs: the pension and 401(k) withdrawals are taxed as ordinary income, and part of the Social Security may be taxable too. Use this tool to confirm that your retirement nest egg is shielded from Illinois tax, and plan your federal withholding separately.