Illinois does not tax military retirement pay. The state starts with your federal adjusted gross income and then lets you subtract your full military pension back out before applying the 4.95% flat rate, so the effective Illinois tax on military retirement is zero. The exemption applies regardless of your age, rank, years of service, total income, or branch, and it covers Army, Navy, Air Force, Marine Corps, Space Force, Coast Guard, National Guard, and Reserve retirees.1Illinois Department of Revenue. Does Illinois Tax My Pension, Social Security, or Retirement Income?
The authority is 35 ILCS 5/203(a)(2)(F), which allows a subtraction for distributions from qualified retirement plans and from any retirement or disability plan for employees of a governmental agency or unit.2Illinois General Assembly. Illinois Code 35 ILCS 5/203 – Base Income Defined Military retirement sits squarely inside that language. There is no cap, no partial exemption, and no income test.
What Retirement Income Qualifies
The subtraction covers regular retired pay from all branches of the Armed Forces and from every component, active and reserve. Survivor Benefit Plan payments qualify too. If you receive SBP, RCSBP, or RSFPP annuity payments as a surviving spouse, the federally taxed amount is subtracted on your Illinois return the same way a retiree’s own pension is.3The Official Army Benefits Website. Illinois Military and Veterans Benefits
Illinois is unusually broad on retirement income generally. Social Security, 401(k) and IRA distributions, federal civilian pensions, state and local government pensions, and railroad retirement are all subtractable alongside military pay.1Illinois Department of Revenue. Does Illinois Tax My Pension, Social Security, or Retirement Income? If your post-service income is mostly from retirement sources, your Illinois liability may be small or nothing. Wages, self-employment income, and taxable investment gains are still subject to the 4.95% rate.4Illinois Department of Revenue. Income Tax Rates
VA Disability and Combat Pay
VA disability compensation is exempt from federal taxation under 38 U.S.C. § 5301, so it never enters your federal AGI and never reaches your Illinois return.5Office of the Law Revision Counsel. 38 U.S. Code 5301 – Nonassignability and Exempt Status of Benefits You do not claim a subtraction for it because there is nothing to subtract. Combat zone pay excluded federally works the same way. Concurrent Retirement and Disability Pay splits across both: the retirement piece appears on your 1099-R and goes on your Illinois subtraction line; the VA disability piece stays off your federal return entirely.
How to Claim It on Form IL-1040
Military retirement pay is subtracted on Line 5 of Form IL-1040. Line 5 is the designated line for Social Security benefits and retirement plan income already included in your federal AGI.6Illinois Department of Revenue. 2025 IL-1040 Instructions You enter the federally taxed amount of your military pension, and that figure drops out of your Illinois base income.
Retired filers do not use Schedule M for pension income. Schedule M Line 21 is for active-duty military pay earned by current service members, and it requires attaching a W-2.7Illinois Department of Revenue. 2025 IL-1040 Schedule M Instructions If your military income is purely retirement, Schedule M is not involved.
The number on Line 5 should match what carried into your federal AGI from your Form 1099-R. DFAS issues the 1099-R by the end of January and posts it to myPay; Box 1 shows the gross distribution and Box 2a shows the taxable amount.8Internal Revenue Service. About Form 1099-R Pull your completed federal 1040 before filling in the Illinois form so the figures line up.
Watch one thing closely: if you receive both retirement pay and VA disability, the 1099-R reflects only the taxable retirement portion. Entering a combined figure, or pulling a number from a DFAS Retiree Account Statement that includes the disability offset, is the most common error on this return and can delay processing.
Filing Deadlines
Illinois uses the federal calendar. The 2025 IL-1040 is due April 15, 2026, and an automatic six-month extension to file is available. If the IRS grants a longer federal extension, Illinois matches it automatically.9Illinois Department of Revenue. Due Date/Extension to File Income Tax Return (2025 IL-1040)
An extension of time to file is not an extension of time to pay. Interest runs from the original due date on any unpaid balance. Late-payment penalties are 2% if paid within 30 days of the due date and 10% after that. A late-filing penalty, separate from the payment penalty, is the lesser of $250 or 2% of tax due, with a second tier of up to $5,000 if you fail to file within 30 days of a nonfiling notice.10Illinois Department of Revenue. Penalties and Interest for Illinois Taxes For many retirees, the subtraction wipes out the balance anyway, but if you have significant wages or investment income, estimate and pay by April 15 even if you file later.
You can file through MyTax Illinois at no cost or submit a paper return.11Illinois Department of Revenue. File Form IL-1040 on MyTax Illinois Electronic filing cuts down on data-entry mistakes on the subtraction lines.
If Your Spouse Is Stationed in Illinois
Spouses of active-duty members stationed in Illinois who maintain legal residence in another state are not taxed as Illinois residents on their earned income. Under 50 U.S.C. § 4001, a military spouse does not gain or lose state residency for tax purposes solely by moving to a duty station.12Office of the Law Revision Counsel. 50 USC 4001 – Residence for Tax Purposes A service member and spouse can also elect to share a single state of legal residence for tax purposes, choosing among the service member’s domicile, the spouse’s domicile, or the permanent duty station.
Property Tax Relief for Disabled Veterans
The income tax exemption is only part of the picture. The Standard Homestead Exemption for Veterans with Disabilities, under 35 ILCS 200/15-169, reduces the equalized assessed value of your primary residence based on your VA disability rating:13Illinois General Assembly. Illinois Code 35 ILCS 200/15-169
- 30% to 49% disability: $2,500 reduction
- 50% to 69% disability: $5,000 reduction
- 70% or higher disability: the first $250,000 of EAV is exempt
- Surviving spouses receiving dependency and indemnity compensation qualify at the $250,000 level
At the 70% tier, the exemption eliminates property taxes outright on most Illinois homes. Apply through your county assessor with VA documentation of your rating. A Returning Veterans Homestead Exemption and a Specially Adapted Housing Exemption are also available in narrower circumstances.14Illinois Department of Revenue. Property Tax Relief Information for Veterans These property tax exemptions stack on top of the income tax subtraction, so a disabled retiree in Illinois can see both the pension and the home taxed at nothing.