The Illinois individual income tax return provides a subtraction for Social Security benefits and certain retirement plan income included in federal AGI. When completing an Illinois individual income tax return in TaxSlayer Pro, if the federal return includes retirement income you will need to determine how much qualifies for the subtraction in the Illinois return.
What retirement income can be subtracted in the Illinois return?
The following kinds of retirement income included as taxable on Form 1040 may be subtracted from total income in the Illinois return:
- Income from a qualified employee benefit plan, including a 401(k) plan and including an early distribution, with the exception of nonqualified distributions designated by 1099-R Box 7 codes D and F. This income is reported on Form 1040 line 5b. (Qualified employee benefit plans are defined in IRC Sections 402 through 408. If the taxpayer does not know whether the plan is qualified, they should check with the employer.)
- Income from an IRA, including an amount rolled over to a Roth IRA and including an early distribution, or a self-employed retirement (SEP) plan, reported on Form 1040 line 4b.
- Social Security benefits reported on Form 1040 line 6b. (This does not include amounts withheld from wages on Form W-2.)
- Railroad retirement income reported on Form 1040 lines 5b and 6b.
- Income from a government retirement and government disability plan, including military plans, reported as wages on federal Form 1040 Line 1z.
- Income from a state or local governmental deferred compensation plan paid under IRC Section 457 and reported on federal Form1040 Line 1z or 5b.
- Capital gains on employer securities received in a lump-sum distribution, to the extent the gains are due to net unrealized appreciation on the securities at the time of distribution, reported on Form 1040 line 7b.
- Group term life insurance premiums paid by a qualified retirement plan or government retirement plan and included as wages on federal Form 1040 line 1z.
- Interest income realized on the redemption of U.S. retirement bonds, reported on Form 1040 line 2b.
What retirement income cannot be subtracted in the Illinois return?
The following kinds of retirement income included as taxable on Form 1040 may not be subtracted from total income in the Illinois return:
- Income that is not from a qualified employee benefit plan. This includes income received as third-party sick pay, income from deferred compensation and disability plans that are not government plans, and nonqualified distributions designated by 1099-R Box 7 codes D and F.
- Any ordinary income from a qualified retirement plan for which the taxpayer has elected to use the “Special 10-Year Averaging Method” on federal Form 4972, Tax on Lump-Sum Distributions.
Additional Information:
Illinois DOR: Publication 120, Retirement Income