According to Publication 102, "Illinois does not tax military pay earned by service persons. When completing Schedule M (for 2008 and after) or Schedule NR (for 2007 and earlier), you may subtract tax-exempt military pay that is included as income on Form IL-1040 or Schedule NR."
If you are a resident of Illinois, deduct the active duty military pay included on your state return (if any) by following the steps below:
- State Section
- Edit Illinois Resident return
- Select Additions and Subtractions to Income Schedule M
- If you would like to complete Schedule M, please select "YES",
- Schedule M, Other Subtractions
- Enter your Taxable Military Pay included in your Federal Adjusted Gross Income
- Save
If you are a nonresident of Illinois, stationed in Illinois, deduct the active duty military pay included on your state return (if any) by following the steps below:
- State Section
- Edit Nonresident Illinois Return
- Additions and Subtractions To Income Schedule M, please select "Yes"
- Schedule M, Other Subtractions
- Enter your Taxable Military Pay included in your Federal Adjusted Gross Income
- Enter the subtraction amount again in the box labeled "Enter the total Illinois portion of subtractions"
- Save
If one spouse is a resident and the other is a part-year resident or nonresident, file your Illinois return using the Married Filing Separate status. To do this within the program, file the federal return and wait for the return to be accepted. Then, change the filing status for the primary taxpayer and file a separate return for the first spouse. The second spouse will need to create a new account and file a separate return in that account.
You can elect to file as Married Filing Joint. However, all of the income will be taxed as if you are both residents. If you make this choice, you cannot amend to change the filing status. However, you will be able to claim credit for taxes paid in the other state (if applicable).