Updated October 5, 2026. Quick answer: It depends on where the annuity came from. Illinois taxes income at a flat 4.95%, and the instructions say “The Illinois income tax rate is 4.95 percent (.0495).” Publication 120 says “You may subtract the amount of any federally taxed portion” of income from “a qualified employee benefit plan including 401(k) plans”, and a subtraction is not allowed for “income that is not from a qualified employee benefit plan”.
More state retirement-income schedules, line by line: Illinois IL-1040 line 5.
How Illinois treats annuity income
| Item | What the documents say |
|---|---|
| Treatment | Subtractable when it comes from a qualified plan or IRA; otherwise taxed at the flat rate |
| Rate | 4.95 percent |
| Where the subtraction is claimed | Form IL-1040, Line 5 |
| Where the annuity enters | Federal Form 1040, Line 5b (pensions and annuities), carried to the Illinois return |
| Dollar cap or age limit | None printed in the documents read |
A $24,000 example
An annuity paying $24,000 a year from a qualified employee benefit plan, all of it federally taxed, can be subtracted, so it adds $0 of Illinois tax.
The same $24,000 from a source that is not a qualified plan is taxed at 4.95%, computed as $24,000 x 4.95% = $1,188, before the personal exemption allowance.
What changes in 2026
The latest documents read print no 2026 change to the way annuity income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Topic no. 410, Pensions and Annuities and Publication 575, Pension and Annuity Income.
Related: whether Illinois taxes pensions, how Illinois taxes retirement income, annuity income tax by state, how a surrendered annuity is taxed, and pension and annuity decisions.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare vetted advisors for annuity decisions
If your portfolio is $250,000 or more, this connects you (free, with no obligation to hire anyone) with 2 to 3 vetted advisors.
Before you start, what actually happens. The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you.
WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Clear Money Guide may earn a referral payment for a qualifying completed form, whether or not you ever hire anyone.
Opens on WiserAdvisor’s site in a new tab.
See how an advisor weighs your payout
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment through this service, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 2025 Form IL-1040 Instructions (Illinois Department of Revenue): https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/incometax/documents/currentyear/individual/il-1040-instr.pdf
- Publication 120, Retirement Income (Illinois Department of Revenue): https://tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/pubs/documents/pub-120.pdf
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.