Updated October 16, 2026. Quick answer: Usually not. Illinois’s Department of Revenue says “Most forms of retirement income are not taxed by the State of Illinois”, and a retiree who wants Illinois tax withheld can ask the payer to do it.
More on public pension systems, topic by topic: Illinois SURS employment after retirement, Illinois SURS Disability Retirement Annuity and Illinois SURS service credit.
More on public pension systems, topic by topic: Illinois SERS returning to work and Illinois SERS early retirement and increases.
Illinois pension withholding at a glance
| Item | What the documents say |
|---|---|
| Is state withholding required on regular pension payments? | The Department says most retirement income is not taxed by Illinois and that a taxpayer can request Illinois withholding on it |
| Default rate if you give the payer no form | None stated for pensions |
| Lump sum or one-time payment | The documents read give no separate lump-sum rule |
| Form to start, change or stop it | Form IL-W-4 can be given to a payer under a voluntary-withholding agreement |
| Changed for 2026? | No change stated |
What the Illinois documents say
Illinois does not tax most forms of retirement income. The Department’s Taxpayer Answer Center treats withholding on it as a request: it says a payee “can request Illinois withholding income tax be paid on his/her behalf”.
Form IL-W-4 is the certificate the state uses for withholding from wages and other payments. Its instructions say it can be “submitted to a payor if an agreement was made to voluntarily withhold”. The tax withheld is then claimed on the Illinois return.
What a mover should know
This page is about Illinois as a state of residence. An instruction line written for a nonresident or part-year filer is not the rule for a resident, and none of the documents read settles a part-year or two-state case, so check each state’s own rule. The federal side is the same everywhere; CMG’s federal 20% withholding on a pension lump sum page covers it, state tax withholding on IRA and 401(k) withdrawals in Illinois covers the account side, and state withholding on retirement withdrawals lists the other states checked.
What the documents do not say
- The documents read give no default rate, no lump-sum rule and no 2026 change. Illinois has no pension-specific withholding certificate in the documents read. Form IL-W-4 can be submitted to a payor if an agreement was made to voluntarily withhold Illinois income tax from non-wage income.
Common mistakes
- Assuming the payer is withholding for the state because it withholds for the IRS: in a voluntary state nothing is withheld until you give the payer the state’s form.
- Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.
Related: state tax withholding on IRA and 401(k) withdrawals in Illinois, Illinois retirement taxes, whether Illinois taxes pensions, state withholding on retirement withdrawals, and retirement withholding calculator.
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Answer againSources
- Taxpayer Answer Center: Is withholding required on retirement income?: https://tax.illinois.gov/questionsandanswers/answer.917.html
- Form IL-W-4 Employee’s and other Payee’s Illinois Withholding Allowance Certificate and Instructions: https://tax.illinois.gov/content/dam/soi/en/web/tax/forms/withholding/documents/currentyear/il-w-4.pdf
- IRS Tax Topic 413, Rollovers from retirement plans: https://www.irs.gov/taxtopics/tc413
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.