Illinois does not tax Social Security benefits, regardless of your income level or filing status
If you receive Social Security in Illinois, the state will not take a portion of those payments as income tax. This applies to all types of Social Security: retirement benefits, survivor benefits, and disability benefits. Illinois is one of the states that exempts Social Security income entirely from state taxation, which means your benefits arrive untouched by state tax obligations.
The federal government may still tax your Social Security depending on your total income, but that is a separate matter from Illinois state tax. Understanding the difference between state and federal taxation helps you plan your actual take-home amount and avoid overpaying or underpaying taxes at the end of the year.
Key Takeaways
- Illinois does not tax Social Security benefits at the state level, no matter how much you earn from other sources.
- The federal government may tax part of your Social Security if your combined income exceeds certain thresholds, even though Illinois does not.
- Combined income for federal tax purposes includes adjusted gross income, nontaxable interest, and half of your Social Security benefits.
- You can request federal tax withholding directly from your Social Security payments through Form W-4V if you expect to owe federal taxes.
How federal taxation of Social Security works
Even though Illinois leaves your Social Security alone, the federal government may tax up to 85 percent of your benefits. Whether you owe federal tax on Social Security depends on your combined income, which is calculated as your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.
If you are single and your combined income is between $25,000 and $34,000, you may owe federal tax on up to 50 percent of your benefits. If your combined income exceeds $34,000, you may owe tax on up to 85 percent of your benefits. For married couples filing jointly, the thresholds are $32,000 and $44,000. If your combined income falls below these thresholds, you owe no federal tax on Social Security.
These thresholds have not changed since 1984, so they affect more people now than they did when they were first set. Even modest retirement income from pensions, part-time work, or investment earnings can push you over the threshold.
What counts toward your combined income
Combined income includes wages, self-employment income, interest, dividends, capital gains, and distributions from retirement accounts like IRAs and 401(k)s. It also includes income from rental property, royalties, and annuities. The key is that it includes half of your Social Security benefits, which is why even people with modest other income sometimes find themselves owing federal tax on Social Security.
Nontaxable interest from municipal bonds counts toward combined income for Social Security tax purposes, even though it does not count as taxable income on your federal return. This is a common surprise for retirees who thought they were avoiding taxation by investing in municipal bonds.
If you are married and file separately, the threshold drops to $0 — meaning you will likely owe tax on your Social Security if you have any other income at all. This is one reason married couples are usually better off filing jointly.
Withholding federal taxes from your Social Security check
If you know you will owe federal tax on your Social Security, you can have the Social Security Administration withhold money from your monthly payment. This prevents a large tax bill at the end of the year and works the same way as withholding from a paycheck.
To set up withholding, you complete Form W-4V and submit it to your local Social Security office or mail it to the address on the form. You can choose to have 7, 10, 12, or 22 percent of your benefit withheld, or you can request a specific dollar amount. You can change your withholding at any time if your income or tax situation changes.
If you do not set up withholding and you owe federal tax, you will need to pay it when you file your tax return. Some people make quarterly estimated tax payments instead of using withholding, though withholding is usually simpler for Social Security recipients.
Illinois tax credits and deductions for retirees
While Illinois does not tax Social Security, the state does offer other tax breaks for people over 65. Illinois allows a property tax credit for seniors and disabled people with household income below certain limits. The credit amount depends on your property tax bill and your income.
Illinois also has a tax deduction for certain retirement income, though Social Security is not included. If you receive a pension from the state or federal government, or from certain railroad retirement benefits, you may be able to deduct part of that income. The rules are specific to the type of pension, so check the Illinois Department of Revenue website or speak with a tax professional if you have pension income.
Comparing Illinois to other states
Illinois is one of 38 states that do not tax Social Security benefits. The other states that tax Social Security are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. Even in those states, the tax is usually lower than the federal tax, and many of them offer exemptions or deductions that reduce the actual tax owed.
If you are considering moving in retirement, Social Security taxation is one factor to weigh, though it is usually not the largest part of your overall tax burden. State income tax on wages, pensions, and investment income often matters more than Social Security taxation.
Planning your retirement income to minimize federal taxes
If you have control over when you take money from different sources, you can sometimes reduce the amount of Social Security that gets taxed federally. For example, taking money from a Roth IRA (which does not count toward combined income) instead of a traditional IRA (which does) can lower your combined income and reduce Social Security taxation.
Delaying Social Security until age 70 instead of taking it at 62 increases your monthly benefit and may allow you to live off other income sources while your Social Security grows. This strategy works best if you have other savings to draw from in your early retirement years.
A tax professional or financial planner can help you model different scenarios and decide which combination of income sources makes sense for your situation. The federal tax rules are complex enough that professional guidance often pays for itself through tax savings.
Frequently Asked Questions
Will I owe Illinois state tax on my Social Security?
No. Illinois does not tax Social Security benefits at the state level. You will not owe Illinois income tax on any amount of your Social Security, regardless of how much you earn from other sources or your total income.
Do I still have to file a federal tax return if I only have Social Security income?
Not necessarily. If Social Security is your only income and it is below the filing threshold, you do not have to file. For 2024, a single person with only Social Security income does not have to file unless their benefits exceed $14,600. However, filing may be worth it if you are owed a refund from federal tax withheld.
How do I know if the federal government will tax my Social Security?
Calculate your combined income: add your adjusted gross income, nontaxable interest, and half your Social Security benefits. If you are single and the total exceeds $25,000, some of your benefits may be taxed. If it exceeds $34,000, up to 85 percent may be taxed. For married couples filing jointly, the thresholds are $32,000 and $44,000.
Can I change my federal tax withholding from Social Security?
Yes. Complete Form W-4V and submit it to your local Social Security office or by mail. You can choose a withholding percentage (7, 10, 12, or 22 percent) or request a specific dollar amount. You can change it whenever your situation changes.
Does my spouse's Social Security count toward my combined income?
No. Each person's Social Security is calculated separately for federal tax purposes. However, if you are married and file jointly, both of your combined incomes are considered together to determine whether either of your benefits is taxed.