Updated October 7, 2026. Quick answer: Not unless you ask. The Department of Revenue says “Most forms of retirement income are not taxed” by Illinois, and that “a taxpayer can request Illinois withholding income tax be paid” on their behalf.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Illinois tax withholding on pension payments.
Illinois withholding at a glance
| Item | What the documents say |
|---|---|
| Is it required? | No. Most forms of retirement income are not taxed by Illinois; a taxpayer can request withholding |
| Rate or amount | Not stated in the answer read |
| How to start or stop it | Request it from the payer; the answer read names no state form |
| Direct rollover | Not stated in the documents read |
| Changed for 2026? | No change stated |
What the Illinois documents say
The Department of Revenue’s Taxpayer Answer Center answers whether withholding is required on retirement income. It says “Most forms of retirement income are not taxed” by the State of Illinois; however, “a taxpayer can request Illinois withholding income tax be paid” on his or her behalf.
If the payer withholds, the answer says the payer must remit the amount to the Department and “report the amount withheld to the taxpayer on the Form 1099-R”.
A $50,000 withdrawal: cash in hand or a direct rollover
Take a $50,000 401(k) withdrawal paid to you. The IRS says a taxable eligible rollover distribution paid to you from an employer plan is subject to “mandatory income tax withholding (generally at a rate of 20%)”, which on $50,000 is $10,000 (computed as $50,000 times 20%) held back for federal tax. Illinois does not tax most retirement income, so with no request the Illinois amount withheld is $0. The answer read states no rate and names no form for a request.
The other path is a direct rollover to an IRA or another plan. For federal tax the IRS says “The mandatory withholding doesn’t apply in a direct rollover”. The Illinois documents read do not say how a direct rollover is treated for state withholding, so confirm it with the payer before choosing.
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.
What the documents do not say
- The one document read is a short answer. It states no rate, names no state form, cites no statute, does not address a direct rollover, and states no change for 2026.
Common mistakes
- Reading the answer as saying all retirement withdrawals are untaxed; it says most forms of retirement income are not taxed, so check your own distribution.
- Assuming Illinois tax was withheld because the 1099-R shows federal tax; the answer says withholding happens when a taxpayer requests it.
- Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.
Related: how Illinois taxes 401(k) and IRA withdrawals, Illinois retirement taxes, retirement withholding calculator, and retirement taxes by state.
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Answer againSources
- Taxpayer Answer Center: Is withholding required on retirement income?: https://tax.illinois.gov/questionsandanswers/answer.917.html
- IRS Tax Topic 413, Rollovers from retirement plans: https://www.irs.gov/taxtopics/tc413
Sources: the primary documents linked above, read on October 7, 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.