Illinois Military Pay and Retirement Income Tax Treatment
Illinois taxes neither military pay nor military retired pay. Active duty pay is subtracted on Schedule M; retired pay and Survivor Benefit Plan annuities come off as retirement income on the return itself.
Also called: income tax, military pay, military retirement, Schedule M, IL-1040, Publication 102, SBP, National Guard pay.
Illinois does not tax military pay and does not tax military retired pay, but the two come off the return in different places, and mixing them up is the most common filing error here.
Military pay is subtracted on Schedule M. The Department of Revenue's list of what qualifies is broad: pay for duty in the armed forces including basic training, pay for duty as a cadet at the Military, Air Force, or Coast Guard academies or as a midshipman at the Naval Academy, pay for duty in ROTC, and pay for duty in the Armed Forces Reserves or a National Guard unit, including a National Guard unit of another state. A Guard member drilling in Illinois for another state's unit is covered.
Military retired pay is not subtracted on Schedule M. It is retirement income, and it comes off on Line 5 of Form IL-1040 along with pensions, Social Security, railroad retirement, and governmental deferred compensation. Putting retired pay on Schedule M will generate a notice.
Survivor Benefit Plan, Reserve Component SBP, and Retired Serviceman's Family Protection Plan annuities are likewise not taxed. Military disability retirement pay is not taxed.
VA disability compensation, VA pension, and Dependency and Indemnity Compensation are not in federal adjusted gross income, and Illinois taxable income starts from that federal figure, so none of them are taxed here either.
Two further provisions are worth knowing. Where federal income tax is forgiven for a service member who died in a combat zone or from wounds received in one, Illinois allows a full deduction for that income. And under the federal Military Spouses Residency Relief Act, a nonresident spouse of a nonresident service member is not taxed by Illinois on wages earned in the state.
Read Publication 102, Illinois Filing Requirements for Military Personnel, and Publication 120, Retirement Income, before filing.
Thresholds
Thresholds for Illinois Military Pay and Retirement Income Tax Treatment
Gate
Rule
No eligibility test
Neither the military pay subtraction nor the retirement income treatment depends on a disability rating, an age, or an income level. The rating filter never hides this entry.
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Disclaimer
VetTOC is not affiliated with the U.S. Department of Veterans Affairs or the Department of Defense. Information is for reference only and is not an eligibility determination. Verify with VA, the relevant state or territory, or an accredited VSO.