State-by-State Guide to Taxes on Retirees
Tool | December 2021

Illinois State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.


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The Bottom Line
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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 statewide median property tax rate in Illinois is the second-highest in the nation. 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.

Sales tax rates are high in Illinois, too. The state has the eighth-highest average combined state and local sales tax rate at 8.81%. Illinois also has an estate tax, which can be bad news for your heirs.

Income Tax Range

Illinois has a flat rate of 4.95% of federal adjusted gross income after modifications.

Taxation of Social Security Benefits

Social Security benefits are not taxed by the state.

Tax Breaks 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.

Sales Tax

6.25% state levy. Localities can add as much as 4.75%, and the average combined rate is 8.81%, according to the Tax Foundation.

Groceries: Taxable (1% state rate; additional local taxes may apply)
Clothing: Taxable
Motor Vehicles: Taxable
Prescription Drugs: Taxable (1% state rate; additional local taxes may apply)

NOTE: The state tax on groceries is suspended from July 1, 2022, to June 30, 2023.

Real Property Taxes

In Illinois, the median property tax rate is $2,241 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 ($8,000 in Cook County and, starting in 2023, bordering counties).

Seniors with household income of $65,000 or less can get their property's assessed value frozen.

In addition, qualified residents age 65 or older with a household income of $65,000 or less can defer up to $7,500 in property tax payments.

A city, village or incorporated town can also refund property taxes paid by certain residents who are at least 65 years old.

Annual Car Taxes and Fees

An annual vehicle registration fee is imposed.

Estate and Inheritance Taxes

Illinois has an estate tax with a $4 million exemption. Estate tax rates are from 0.8% to 16%.