Active-duty pay
Fully Exempt
Active-duty pay fully exempt from IL income tax.
State Guide · IL
Illinois — Military Tax Treatment
Illinois is one of the best states in the country for military pay. Active duty, retirement, Guard drill, Reserve pay — all of it is exempt from IL income tax. No carve-outs, no station rules, no age requirements.
Tax treatment at a glance
Guard & Reserve drill pay
Fully Exempt
Illinois exempts ALL military pay — Guard and Reserve drill pay is explicitly included in the exemption. No station-outside-state requirement.
Military retirement pay
Fully Exempt
Military retirement pay fully exempt.
The numbers · verified for tax year 2025
Top marginal rate
4.95%
Retirement-pay exemption
Full
Military retirement pay is 100% exempt from Illinois income tax (subtracted on Schedule M); all military pay including active-duty is also exempt — no cap, no age requirement.
Standard deduction
Illinois is a flat 4.95% with no standard deduction; it uses a personal exemption allowance ($2,850 per person for 2025).
VA disability compensation
Always tax-free
Federally tax-free under 38 USC § 5301. No state taxes VA disability compensation as income — Illinois included.
Survivor Benefit Plan (SBP)
Follows retirement
Illinois exempts all military income including retirement — SBP annuities are exempt.
Federal rules that override state law
SCRA — Servicemembers Civil Relief Act
Active-duty servicemembers pay state income tax only to their state of legal domicile — not the state where they are stationed. If you are from Texas and stationed in Illinois, Illinois cannot tax your military pay. This applies during all active duty periods and during Guard/Reserve mobilizations on federal (Title 10) orders.
MSRRA — Military Spouses Residency Relief Act
Military spouses can maintain their home-state domicile even when living in a different state due to their servicemember's orders. A spouse who is a Texas resident following their servicemember to Illinois can keep Texas as their tax domicile and avoid Illinois state income tax on their wages.
Guard & Reserve — the SCRA gap
SCRA pay protections apply during federal (Title 10) activation orders. During routine drill weekends and state-only activations, Guard and Reserve members are state residents serving in their home state — SCRA does not protect their drill pay from state income tax. Whether Illinois exempts that pay is the state-specific question answered above.
Filing watch-outs
- 01Claim the exemption using IL-1040 Schedule M
- 02Guard and Reserve pay exemption is explicitly stated in IL income tax instructions — include all military pay categories on Schedule M
Veteran-specific tax benefits
Disabled veteran property tax exemption.
Official authority
https://tax.illinois.gov/ ↗State tax law changes annually. Verify current rules with the Illinois Department of Revenue before making any tax decision.
Illinois military tax — common questions
Does Illinois tax military retirement pay in 2026?
Illinois fully exempts military retirement pay. Military retirement pay fully exempt.
Does Illinois tax active-duty military pay?
Illinois fully exempts active-duty military pay for state residents. Active-duty pay fully exempt from IL income tax. Under the SCRA, Illinois can only tax the military pay of service members who are legally domiciled in Illinois — not those merely stationed there.
Does Illinois tax National Guard and Reserve drill pay?
Illinois fully exempts Guard and Reserve drill pay. Illinois exempts ALL military pay — Guard and Reserve drill pay is explicitly included in the exemption. No station-outside-state requirement.
Is VA disability compensation taxed in Illinois?
No. VA disability compensation is federally tax-free under 38 U.S.C. § 5301, and no state — including Illinois — taxes it as income.
If I'm stationed in Illinois but claim another state, can Illinois tax my military pay?
No. Under the Servicemembers Civil Relief Act (SCRA), active-duty pay is taxable only by your state of legal domicile, not the state where you are stationed. If your domicile is elsewhere, Illinois cannot tax your active-duty military pay. Military spouses get the same protection under the MSRRA.
Related tools
Other state guides