Does Illinois Tax Military Pay?
As a service member stationed in Illinois or planning to relocate to the state, it’s essential to understand the tax implications of your military pay. Will you be required to pay state income tax on your military compensation? The answer is yes, but with some exceptions.
Is Military Pay Subject to Taxation in Illinois?
Illinois, like many other states, taxes military pay as ordinary income. According to the Illinois Department of Revenue, military pay is considered "wages" and is subject to state income tax. Military pay is taxed as ordinary income, just like civilian wages.
However, there are some exceptions and exclusions that can affect the taxability of military pay. We’ll dive into these details below.
Federal Exclusions
The Internal Revenue Code (IRC) provides exclusions for certain types of military pay, which can reduce or eliminate state taxation. These exclusions include:
- Basic Allowance for Housing (BAH): This exclusion applies to BAH paid to service members who are stationed in the United States or its territories.
- Basic Allowance for Subsistence (BAS): This exclusion applies to BAS paid to service members.
- Combat Zone Exclusion: This exclusion applies to service members stationed in designated combat zones.
Illinois Exclusions
Illinois has its own exclusions and exemptions that can affect the taxation of military pay. These include:
- Illinois Military Tax Exemption: This exemption applies to active-duty service members who are stationed in Illinois. It excludes up to $20,000 of military pay from state income tax.
- Retirement and Disability Benefits: Illinois excludes retirement and disability benefits received by military retirees and veterans from state income tax.
- Survivor Benefits: Illinois excludes survivor benefits, such as Dependency and Indemnity Compensation (DIC), from state income tax.
Tax Rates and Brackets
Illinois has a progressive tax system, with rates ranging from 4.95% to 7.95%. Military pay is taxed at the individual’s marginal tax rate, based on their taxable income. Here’s a breakdown of the Illinois state income tax rates and brackets:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $12,950 | 4.95% |
| $12,951 – $39,250 | 6.95% |
| $39,251 – $98,750 | 7.25% |
| $98,751 – $250,000 | 7.95% |
How to File and Claim Exemptions
Service members can claim the Illinois Military Tax Exemption by filing a Form IL-1040, Illinois Individual Income Tax Return, and completing the Form IL-1040-S, Military Exemption Certification. You’ll need to provide documentation, such as your military orders and identification, to support your claim.
Table: Illinois Military Tax Exemption
| Military Pay | Exempt Amount | Taxable Amount |
|---|---|---|
| $40,000 | $20,000 | $20,000 |
| $60,000 | $20,000 | $40,000 |
| $80,000 | $20,000 | $60,000 |
Conclusion
In conclusion, Illinois does tax military pay, but with some exclusions and exemptions. Understanding these provisions can help you minimize your state income tax liability. As a service member stationed in Illinois or planning to relocate, it’s essential to familiarize yourself with the state’s tax laws and regulations. Remember to file the necessary forms and documentation to claim the Illinois Military Tax Exemption and take advantage of other available exclusions.
Additional Resources
- Illinois Department of Revenue: www.revenue.state.il.us
- Internal Revenue Service: www.irs.gov
- Military Compensation: www.dod.gov/military-compensation
By understanding the taxation of military pay in Illinois, you can better plan your finances and make informed decisions about your military career.
