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Tool | September 2014

State-by-State Guide to Taxes on Retirees

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The Bottom Line
Map of Illinois


The Prairie State 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 exceed 10% -- among the highest sales tax rates in the U.S. Most property is assessed at one-third of its market value, and there are numerous homestead exemptions for seniors 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%.

Income Tax Range

There is a flat rate of 5% of federal adjusted gross income after modifications in 2013, which will return to its pre-2011 rate of 3.75% in 2015, barring action by the state legislature.

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 assessed based on its ability to produce income. Cook County has different criteria: Single-family residences are assessed at 10%.

The state offers a General Homestead Exemption, which applies to owner-occupied residential property. That break can exempt from taxation a maximum of $6,000 ($7,000 in Cook County) from a property’s equalized assessed value (EAV).

Median property tax on the state's median home value of $202,200 is $3,507, according to the Tax Foundation.

Tax breaks for seniors: The Senior Citizens Homestead Exemption allows a $5,000 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 as a result of 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 $55,000 and meet certain other qualifications, to defer up to a maximum of $5,000 of 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 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. Illinois has an estate tax with a $4 million exemption. The maximum estate-tax rate is 16%.


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