State-by-State Guide to Taxes on Retirees
Tool | November 2019

State-by-State Guide to Taxes on Retirees


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The Bottom Line
Flag of Illinois

Least Tax-Friendly

There is some good tax news for retirees in Illinois: Social Security benefits and income from most retirement plans are exempt. Plus, the state’s 4.95% flat income tax rate is relatively low.

Now for the bad news: Property taxes hit retirees hard in Illinois. The state-wide average property tax rate in Illinois is the second-highest in the nation—a staggering $9,634 per year on a $400,000 home. Fortunately, there is some relief for seniors in the form of a homestead exemption of up to $5,000 ($8,000 in Cook County), the ability to "freeze" a home’s assessed value (must have income of $65,000 or less), and a tax deferral program (up to a maximum of $5,000).

Sales tax rates are high in Illinois, too. The state has the seventh-highest average combined state and local sales tax rate at 8.78%. In some locations, the rate can be as high as 11%!

Illinois also has an estate tax that applies to estates worth $4 million or more. That can be bad news for your heirs.

State Sales Tax

6.25% state levy. Localities can add as much as 4.75%, and the average combined rate is 8.78%, according to the Tax Foundation. Food, prescription drugs and non-prescription drugs are all taxed at 1% by the state, and local tax may be due on these as well.

Income Tax Range

There is a flat rate of 4.95% of federal adjusted gross income after modifications.

Effective tax rate: 4.95% for single filers, 4.63% for joint filers

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Income from most retirement plans is exempt, including payments from qualified employee benefit plans (including 401(k) plans and traditional pensions), government retirement plans, military pensions, and IRAs.

Railroad Retirement benefits are also exempt.

Property Taxes

In Illinois, residents pay an average of $2,408 in taxes per $100,000 of assessed home value.

Illinois residents who are at least 65 years old are eligible for a homestead exemption of up to $5,000. Seniors with household income of $65,000 or less can get their property's assessed value frozen. Additionally, they can defer property-tax payments.

Vehicle Taxes

Sales tax is 6.25% and up, depending on locality, on purchases of new cars. Private purchases of used cars are subject to a lower use tax that can vary by the age of the vehicle.

Inheritance and Estate Taxes

Illinois has an estate tax with a $4 million exemption. The maximum estate-tax rate is 16%.