Last Updated: April 2026
Illinois is losing population faster than almost any other US state — driven primarily by high property taxes (2nd highest in the US at 2.07% average), high state pension obligations, and a perception of fiscal instability. But the tax picture is more nuanced than it appears: Illinois has a modest flat income tax (4.95%) and completely exempts retirement income — making it one of the better income tax environments for retirees, even if property taxes are brutal.
This guide covers what you actually owe when leaving Illinois, how Illinois residency ends, the impact of leaving on your pension income (spoiler: Illinois pension exemption disappears when you move), and the key factors in the Illinois-to-Florida/Texas decision.
Illinois uses a standard domicile-based residency test — you are an Illinois resident if your permanent home (domicile) is in Illinois. Unlike New York, Illinois does not have a statutory residency test based on day count and maintaining a place of abode. This means: if you genuinely establish domicile elsewhere, you are no longer an Illinois resident even if you spend significant time in Illinois (though you'd still owe IL tax on IL-source income).
In the departure year, Illinois taxes your income earned while an Illinois resident (worldwide income) at 4.95%. After departure, only Illinois-source income (IL rental income, IL business income, IL wages for days worked in IL) is taxable.
Illinois's biggest tax advantage — often overlooked — is its complete exemption of retirement income. Illinois exempts from state income tax:
This means a retiree with $150,000 in pension and IRA income pays zero Illinois income tax on that income. In contrast, moving to Florida means 0% income tax (same); but moving to some other states means paying income tax on those distributions.
Despite the income tax advantage for retirees, Illinois property taxes are so high that they often dominate the calculation. A retiree with a $500,000 Illinois home pays approximately $10,350/year in property tax. The same retiree in Florida: approximately $4,300/year. The property tax saving of ~$6,000/year typically exceeds the income tax differential for most retirement income levels — making Florida financially attractive even accounting for Illinois's pension exemption.
When you leave Illinois, you cease to qualify for the Illinois Homestead Exemption ($10,000 off equalized assessed value for primary residences) and any local homestead additions. If you retain an Illinois property as a rental or vacation home, the homestead exemption is revoked — your property tax bill increases. For a $500,000 former primary home retained as a rental: losing the homestead exemption adds approximately $100–$200/year in property tax (the exemption's dollar value at average Illinois rates). More significant: you are now paying full rental property rates with no primary residence protections.
For most Illinois homeowners, selling the primary home before or shortly after departure is the financially optimal choice — both to realise equity and to eliminate the ongoing high-tax Illinois property holding.
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Moving from Illinois means handling a part-year return, school district income tax proration, property tax planning, and establishing new state domicile. Get matched with a CPA who knows Illinois and multi-state returns.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
Get Matched With a CPA →No — under the federal Source Tax Law (4 USC §114), states cannot tax pension income paid to non-residents. Once you are no longer an Illinois resident, Illinois has no right to tax your pension, IRA distributions, or 401(k) withdrawals, regardless of whether those funds were earned or contributed while you lived in Illinois. The Illinois pension exemption (which applies to residents) and the federal non-resident pension protection both result in zero Illinois tax on retirement income for non-Illinois residents.
Illinois has the second-highest average property tax rate in the US for structural reasons: a highly fragmented local government (7,000+ taxing districts — the most in the US); heavy reliance on property tax to fund schools; decades of underfunded public pension obligations that push up local levy requirements; and constitutional constraints preventing a shift to income-based revenue. Chicago's Cook County suburbs often exceed 2.5% effective rates. The Illinois legislature has explored property tax relief measures but the fundamental structural drivers remain unresolved.
No — the school district income tax (SDIT) is separate from and in addition to the 4.95% state income tax. Illinois allows school districts to levy their own income tax on district residents. Over 200 Illinois school districts charge SDIT ranging from 0.5% to 3%. A resident of a 2% school district with $100,000 income pays: 4.95% state = $4,950 + 2% school district = $2,000 = $6,950 total state + local income tax. This additional layer is a significant factor in Illinois's total tax burden — and typically ends immediately when you establish residency in another state.