Illinois allows many types of federally taxed retirement income to be subtracted from Illinois income. If qualifying retirement income is included in your federal adjusted gross income (AGI), you may be able to claim a subtraction on Form IL-1040, Line 5.
What Retirement Income Qualifies for the Illinois Subtraction?
Illinois allows a subtraction for federally taxed retirement income included in your federal AGI from the following sources:
- Social Security benefits
- Railroad Retirement benefits
- Qualified employee benefit plans
- 401(k) plans
- Individual Retirement Arrangements (IRAs)
- Self-employed retirement plans
- Government retirement plans
- Government disability plans
- State and local government deferred compensation plans
- Certain capital gains from employer securities
- Group-term life insurance premiums paid by a qualified retirement plan and reported as wages for federal purposes
Illinois reports this subtraction on Form IL-1040, Line 5.
What Retirement Income Does Not Qualify?
Some federally taxed income that may appear retirement-related does not qualify for the Illinois retirement income subtraction.
Examples include:
- Distributions from nonqualified retirement plans
- Form 1099-R distributions with certain nonqualified distribution codes
- Third-party sick pay
- Deferred compensation plans that are not government plans
- Disability plans that are not government plans
- Retirement income reported using the Special 10-Year Averaging method on federal Form 4972
How Do I Enter Retirement Income in the Program?
The program may automatically bring qualifying retirement income into the Illinois return based on information entered in the federal section.
To review or enter the amount:
- Open your Illinois return.
- Navigate to the Subtractions From Income section.
- Locate the field labeled:
Amount of federally taxed retirement income on line 1 of your IL return that qualifies as a subtraction on line 5 of your IL return
- Review the amount shown.
- Enter or adjust the qualifying retirement income if necessary.
- Continue through the remainder of the Illinois interview.
Frequently Asked Questions
Do I need to enter Social Security benefits?
Illinois allows a subtraction for federally taxed Social Security benefits included in federal AGI. In many cases, the program carries this information automatically from the federal return.
Can I subtract my entire pension?
Most pension income from qualified retirement plans can be subtracted if it was included in federal AGI. However, some distributions from nonqualified plans may not qualify.
Do IRA distributions qualify?
Yes. Federally taxed IRA distributions generally qualify for the Illinois retirement income subtraction.
Why isn't all of my retirement income included?
Illinois only allows certain categories of retirement income to be subtracted. Income from nonqualified plans, third-party sick pay, and certain deferred compensation arrangements may not qualify.
Where does the subtraction appear on my Illinois return?
The retirement income subtraction is reported on Form IL-1040, Line 5 – Social Security benefits and certain retirement plans.
Helpful Tips
- Review Forms 1099-R, SSA-1099, and RRB-1099 before completing this section.
- Verify that the retirement income was included in your federal AGI.
- Keep copies of all retirement income statements with your tax records.
- Compare the amount entered in the program to the amount reported on Form IL-1040, Line 5.
- If your retirement income comes from an unusual source, review Illinois Publication 120 for additional guidance on qualifying retirement income.
Additional Information
Illinois specifically instructs taxpayers to subtract qualifying federally taxed retirement income included in federal AGI, including retirement distributions reported on Form 1040 and Social Security benefits reported on the federal return. Supporting forms such as Forms W-2, 1099, and the federal Form 1040 may be required to substantiate the subtraction if requested by the Illinois Department of Revenue.