As far as places for retirement go, Illinois provides a variety of activities, beautiful scenery, and a great arts and entertainment community. The cost of living in the state is below the national average so retirees can get more bang for their buck while they enjoy their golden years.
Additionally, the median home cost is far lower than the average across the country. However, the tax situation in Illinois may put a damper on that enjoyment.
While Illinois ranks 30th in the nation in terms of total tax burden on its residents, making it slightly more tax friendly than average, in many key categories, the state’s tax rates are higher than the national average.
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Here is a look at some important tax information you need to consider before settling on retirement in Illinois:
1. Tax Rates
Overall, Illinois is ranked 29th in the country for total tax burden on its residents, with taxpayers dishing out $101.31 for every $1,000. However, as of Jan. 1, 2015, the state income tax rate returned to its pre-2011 rate of 3.75 percent, down from 5 percent it was modified to in 2013.
But state sales tax is 6.25 percent and with the addition of local sales taxes on top of that, the overall sales tax rate can be as high as 10 percent in some areas, making Illinois’s sales tax rates one of the highest in the country.
Additionally, the state adds sales taxes to items such as cigarettes, and gasoline and diesel fuel, something that many other states do not do.
2. Social Security Benefits
Illinois represents one of 29 states in the county that exempts all Social Security benefits from taxation.
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3. Property Taxes
Most property within the state of Illinois is assessed at 33.33 percent of its market value, with the exception of farmland. That is assessed based on its ability to produce an income. Cook County, in Illinois’s northeast corner, is different from the rest of Illinois, though. Single-family residences are assessed 10 percent.
The state also offers several tax exemptions that retirees can benefit from. The General Homestead Exemption applies to owner-occupied residential property and can exempt a maximum of $6,000 (or $7,000 in Cook County) from a property’s equalized assessed value.
Likewise, the Senior Citizens Homestead Exemption applies for people 65 or older and allows for a $5,000 reduction in the EAV of the property if the person pays taxes on, owns or leases and occupies the property as a residence.
4. Retirement Income
The state of Illinois does not tax many forms of retirement income, including the following: qualified employee benefit plans, including 401(k)s; IRAs, including traditional IRAs that have been converted to Roth IRAs; self-employment retirement plans; redemption of federal retirement bonds; government retirement or disability plans, including military plans; railroad retirement income; retirement payments to retired partners; and distribution of lump-sum appreciated employer securities.
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