Illinois retired pay

Is military retirement taxed in Illinois?

Not taxed

Exempt on Line 5, Active Pay Too.

No. Illinois lets you subtract the federally taxed portion of retirement income from a government retirement plan, military plans included, on Form IL-1040, Line 5, with no cap, age test, or income limit. Illinois also subtracts pay for service in any component of the Armed Forces and the National Guard, so a resident's military income is generally untaxed before and after retirement.

The law: 35 ILCS 5/203(a)(2)(F)
Current rule since: Not dated in the department's guidance; 35 ILCS 5/203(a)(2)(F) and Publication 120 (R-12/25) cover every year still open for refund
Where you claim it: Form IL-1040, Line 5 (Social Security benefits and certain retirement plans) for tax year 2025, with the federal return pages Publication 120 lists attached

Read on Illinois’s own sources October 9, 2026

What Illinois’s rule is worth on your retired pay

Enter your annual taxable retired pay (box 2a of your DFAS or Coast Guard 1099-R). The rate starts at Illinois’s flat 4.95% rate (2025 and 2026) for tax year 2026; change it to your own bracket if you know it.

One rate applied to the whole amount, not Illinois’s full return: brackets, other income, deductions and credits change the real figure. Use it to compare, then check the state’s own form instructions.

How it works in Illinois

Enter the federally taxed amount of your retired pay on Line 5 of the 2025 IL-1040. Line 5 is one combined figure: Social Security benefits, IRA and qualified plan distributions, and government retirement all go into it. The instructions and Publication 120 both say to use the taxable portion included in your federal adjusted gross income, not the gross amount on the 1099-R.

Attach the proof. Publication 120 (R-12/25) tells you to attach federal Form 1040 pages 1 and 2 when you subtract government retirement, military plans included. If your federal Lines 4b, 5b and 6b do not clearly show which income you are subtracting, it also asks for the 1099-R or SSA-1099.

In the year you retire, split your income across two places. Pay on your final military W-2 goes on Schedule M, Line 21, the military pay subtraction, with the W-2 attached. Retired pay that starts later in the year comes from the DFAS 1099-R and goes on Line 5. Neither line has a dollar limit.

On an assumed $36,000 pension, Line 5 saves $1,782 a year at the flat 4.95% rate for 2025. Because the same line also covers IRAs, qualified plans and other government pensions, a later civilian pension or IRA withdrawals come off on top of the military pension instead of competing with it for room.

You still file a return. Publication 102 (R-12/25) says an Illinois resident must file if required to file a federal return, or if Illinois base income exceeds the Illinois exemption allowance. A retiree whose income is all pension and Social Security can end with zero Illinois base income and still owe a return because the federal one is required.

Survivor Benefit Plan annuities

The Illinois Department of Revenue's Publication 120 and 2025 IL-1040 instructions do not mention Survivor Benefit Plan annuities separately (read October 9, 2026). The statute subtracts distributions under any retirement or disability plan for employees of any governmental agency; confirm with the department before treating an SBP annuity as a Line 5 subtraction.

Active-duty pay in Illinois

Subtracted. 35 ILCS 5/203(a)(2)(E) removes compensation paid to a resident as a member of any component of the Armed Forces, or of the National Guard of any state, claimed on 2025 Schedule M, Line 21. Public Health Service officer pay, civilian pay from the military, and Voluntary Separation Incentive pay do not qualify.

Missed it in an earlier year?

The IL-1040-X instructions (R-12/25) say a refund claim must be filed within three years after the extended due date, three years after the original return was filed, or one year after the Illinois tax was paid, whichever is latest. Amend on Form IL-1040-X, never a second IL-1040.

What trips Illinois retirees up

Public Health Service officers are treated differently on the two lines. Schedule M, Line 21 bars PHS officer pay from the active-duty subtraction, while Publication 120 describes Line 5 as covering government retirement and government disability plans in general, not only military ones. The department does not address PHS or NOAA Corps retired pay by name (read October 9, 2026).
The department's line references for government retirement point to federal Form 1040, Line 1z, while its qualified-plan bullet points to Line 5b. 35 ILCS 5/203(a)(2)(F) describes the income by its source, a retirement or disability plan for employees of a governmental agency, not by the federal line, so enter your taxable retired pay on Line 5 wherever it appears on your federal return.
Early distributions count. Publication 120 says you may include early distributions from qualified plans and IRAs on Line 5. Among the federally taxed retirement income it bars from Line 5 is ordinary income for which you elected Special 10-Year Averaging on federal Form 4972.

Federal side: DFAS reports retired pay on Form 1099-R, and the IRS taxes it as a pension. VA disability compensation is not taxable income under federal law (IRS Publication 525). The SCRA’s tax-home rule (50 U.S.C. § 4001) protects servicemembers on orders, not retirees, so where a retiree lives decides which state taxes the pension. Compare every state on the 51-state ledger. Illinois’s other servicemember protections are on the Illinois SCRA page.

Frequently asked questions

Does Illinois tax military retirement?

No. 35 ILCS 5/203(a)(2)(F) subtracts amounts included in federal adjusted gross income as distributions under any retirement or disability plan for employees of any governmental agency or unit. The department's Publication 120 (R-12/25) lists government retirement and government disability plans, including military plans, among the income you may subtract on Form IL-1040, Line 5. There is no age test, income limit, or dollar cap. Attach federal Form 1040 pages 1 and 2, and the 1099-R if your federal lines do not clearly identify the income (read October 9, 2026).

Do I have to file an Illinois return if my income is only military retirement and Social Security?

Yes, if you have to file a federal return. The Illinois Department of Revenue's Publication 102 says a resident must file when required to file a federal return, or when Illinois base income is greater than the Illinois exemption allowance. Both military retired pay and federally taxed Social Security go on Line 5 of the IL-1040, so your Illinois tax may be zero. The filing duty still follows the federal one, even when every dollar of income comes off on Line 5.

Is SBP taxed in Illinois?

The Illinois Department of Revenue does not answer this by name. Publication 120 (R-12/25) and the 2025 IL-1040 instructions list government retirement plans, military plans included, as Line 5 income, but neither mentions Survivor Benefit Plan annuities (read October 9, 2026). The statute, 35 ILCS 5/203(a)(2)(F), subtracts distributions under any retirement or disability plan for employees of any governmental agency. A surviving spouse should get a written answer from the department before relying on Line 5 for the annuity.

Is active-duty military pay taxed in Illinois?

No, for most service members. Under 35 ILCS 5/203(a)(2)(E), Illinois subtracts compensation paid to a resident as a member of any component of the Armed Forces and of the National Guard of any state. The 2025 Schedule M puts it on Line 21, and Publication 102 says that includes basic training, academy cadet and midshipman pay, ROTC duty, and Reserve or Guard duty. Public Health Service officer pay and civilian pay from the military do not qualify, and combat pay already excluded federally is not subtracted again.

Sources, read October 9, 2026

Know someone this saves money? Pass it on

Heads up: SCRA Saver publishes general information, not legal or financial advice. Laws change and every situation differs. Confirm details with your installation legal assistance office (free for service members) or a licensed professional.