ILLINOIS
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NICKNAME
The Prairie State
BOTTOM LINE: MIXED TAX PICTURE
Illinois generously excludes a wide variety of retirement income from taxation. But combined state and local sales taxes are steep. In some areas, the combined rate can be as high as 10.5% -- among the highest sales-tax rates in the U.S. Most property is assessed at one-third of its market value, and for seniors there are numerous homestead exemptions tied to age and income.
STATE SALES TAX
6.25% (1% on qualifying food, prescription and nonprescription drugs and medical appliances). Local sales taxes can raise the total to as high as 10.5%.
INCOME-TAX RANGE
Flat rate of 5% of federal adjusted gross income in 2012.
SOCIAL SECURITY
Social Security benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Illinois does not tax distributions from qualified employee benefit plans, including 401(k) plans; IRAs or self-employed retirement plans; traditional IRAs that have been converted to Roth IRAs; the redemption of U.S. retirement bonds; state and local government deferred compensation plans; government retirement or government disability plans, including military plans; Railroad Retirement income; retirement payments to retired partners; and lump-sum distributions of appreciated employer securities.
PROPERTY TAXES
Taxes are imposed by local government taxing districts (counties, townships, municipalities, school districts and special taxing districts). Most property in the state is assessed at 33.33% of its market value, except farmland, which is based on its ability to produce income. Cook County has different criteria; single-family residences there are assessed at 16%.
Tax breaks for seniors: The General Homestead Exemption applies to owner-occupied residential property, which can exempt from taxation a maximum of $6,000 from a property’s equalized assessed value (EAV).
The Senior Citizens Homestead Exemption allows a $4,000 reduction in the EAV of the property that a person 65 or older is obligated to pay taxes on, and owns and occupies, or leases and occupies as a residence.
The Senior Citizens Assessment Freeze Homestead Exemption allows senior citizens who have a total household income of less than $55,000, and who meet certain other qualifications, to maintain the EAV of their homes at the base-year EAV, thereby preventing any increase in that value due to inflation.
The Homestead Improvement Exemption is limited to the fair cash value that was added to the property by any new improvement, up to an annual maximum of $75,000. The exemption continues for four years from the date the improvement is completed and occupied.
The Senior Citizens Real Estate Tax Deferral Program allows people age 65 or older, who have a total household income of less than $50,000 and meet certain other qualifications, to defer all or part of their real estate taxes and special assessments. The deferral is similar to a loan against the property's market value, and a lien is filed on the property in order to ensure repayment of the deferral. The state pays the property taxes and then recovers the money, plus 6% annual interest, when the property is sold or transferred.
INHERITANCE AND ESTATE TAXES
There is no inheritance tax. The estate tax was reinstated in January 2011 with a $2 million exemption, and in December 2011 the state legislature increased the exemption to $3.5 million for 2012 and $4 million for 2013. The maximum estate-tax rate is 16%.
Visit RetirementLiving.com for a complete rundown of taxes in Illinois.
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