Illinois does not tax IRA distributions. The state’s income tax return lets you subtract the federally taxed portion of your traditional, Roth, SEP, and SIMPLE IRA withdrawals from your Illinois taxable income, so the 4.95% flat rate never touches those dollars.1Illinois Department of Revenue. Income Tax Rates The subtraction is built into the standard Form IL-1040, and it applies whether you are 72 taking a required minimum distribution or 45 taking an early withdrawal.
How the Subtraction Zeros Out Your Illinois Tax
Your Illinois return begins with your federal adjusted gross income, the same number that appears on your federal Form 1040. Traditional IRA distributions are already inside that figure because the IRS taxes them as ordinary income. Illinois then pulls them back out on Line 5 of Form IL-1040, before applying the 4.95% rate.2Illinois Department of Revenue. 2025 Form IL-1040 Instructions
One thing to note: the subtraction covers only the federally taxed portion of the distribution. If part of your withdrawal represents a return of after-tax contributions and was never included in your federal AGI, there is nothing to subtract because Illinois was never going to tax it in the first place.
Which Accounts Qualify
The subtraction reaches beyond just IRAs. Illinois Publication 120 lists the following as eligible retirement income:3Illinois Department of Revenue. Publication 120, Retirement Income
- Traditional IRAs, including required minimum distributions
- SEP IRAs and SIMPLE IRAs
- Roth IRAs (only the federally taxed earnings from a non-qualified withdrawal; qualified Roth distributions are already federally tax-free)
- 401(k) plans
- 403(b) tax-sheltered annuities
- Governmental 457(b) deferred compensation plans
- Federal, state, and local government retirement and disability pensions
- Social Security and railroad retirement benefits, to the extent federally taxed
Rollovers between eligible accounts are treated as non-taxable transfers, so moving funds from a 401(k) into an IRA does not trigger Illinois tax.4Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 5/203
Early Withdrawals Still Qualify
A common assumption is that pulling money from an IRA before age 59½ costs you the Illinois subtraction. It does not. Publication 120 states explicitly that early distributions from qualified plans and IRAs may be included in the subtraction.3Illinois Department of Revenue. Publication 120, Retirement Income The federal 10% early withdrawal penalty still applies at the federal level if no exception fits your situation, but Illinois takes nothing.
What Does Not Qualify
A few categories of retirement-adjacent income stay taxable in Illinois:
- Distributions from non-governmental deferred compensation and disability plans that are not qualified employee benefit plans
- Ordinary income from a lump-sum distribution where you elected 10-year averaging on federal Form 4972
- Third-party sick pay, even when reported alongside retirement income
Capital gains on employer securities from a lump-sum distribution can be subtracted, but only to the extent they reflect net unrealized appreciation at the time of distribution and appear on federal Form 1040, Line 7a.3Illinois Department of Revenue. Publication 120, Retirement Income
How to Claim It on Form IL-1040
The subtraction goes on Line 5 of Form IL-1040, labeled “Social Security benefits and certain retirement plans.” For a straightforward IRA, 401(k), or pension distribution, you do not need Schedule M. Enter the total federally taxed retirement and Social Security income already included in your Line 1 adjusted gross income.2Illinois Department of Revenue. 2025 Form IL-1040 Instructions
The instructions tell you where to pull the numbers from your federal return:
- IRA and pension distributions: the taxable amounts on federal Form 1040 or 1040-SR, Lines 4b and 5b
- Social Security benefits: the taxable amount on Line 6b
- Government deferred compensation and disability plans: amounts on Lines 1z and 5b
Documents to Attach
You need a small stack of documentation to support the subtraction:
- Form 1099-R from your IRA custodian or plan administrator, showing your gross distribution in Box 1 and the taxable amount in Box 2a5Internal Revenue Service. About Form 1099-R
- Pages 1 and 2 of your federal Form 1040 or 1040-SR, so Illinois can verify the amounts on Lines 4b, 5b, and 6b
- Federal Schedule 1, if it was part of your federal return
- Any W-2 or 1099 forms reporting retirement-related income
If your retirement income does not flow through the standard federal lines, Publication 120 identifies additional attachments — for example, Schedule D and Form IL-4644 for gains on employer securities from a lump-sum distribution.3Illinois Department of Revenue. Publication 120, Retirement Income Missing paperwork can delay processing or trigger a temporary denial of the subtraction.
If You Moved In or Out of Illinois
Illinois taxes IRA distributions based on when you received them, not where you earned the underlying wages. If you moved out during the tax year, only the distributions taken while you were still an Illinois resident count as Illinois income. Anything you withdrew after establishing residency elsewhere is off the Illinois return entirely.6Illinois Department of Revenue. 2025 Schedule NR Instructions
Full-year non-residents owe no Illinois tax on IRA distributions, even if the contributions were made while working in the state. Part-year residents file Schedule NR and, on Line 13, report only the distributions received during the resident portion of the year. Those amounts still qualify for the Line 5 subtraction, so the resulting Illinois tax on them is zero.
Do You Still Have to File a Return?
Yes, probably. Illinois requires you to file Form IL-1040 if you were required to file a federal return.7Illinois Department of Revenue. Filing Requirements If you did not have to file federally, you still owe an Illinois return if your Illinois base income — after the retirement subtraction — exceeds the personal exemption allowance, which is $2,925 per person for 2026.8Illinois Department of Revenue. What Is the Illinois Personal Exemption Allowance? For most retirees whose only income is IRA and Social Security money, the Illinois tax comes out to zero, but the form still gets submitted.
The deadline for the 2025 return is April 15, 2026. Illinois grants an automatic six-month filing extension to October 15, 2026, though that extension covers the paperwork only, not any tax owed on non-retirement income.9Illinois Department of Revenue. Due Date/Extension to File Income Tax Return