The Popular Midwest State That Exempts Social Security Income

In August 2025, about 70 million people were receiving Social Security benefits, according to the Social Security Administration's Master Beneficiary Record in its Statistical Snapshot report. That number shows just how central these payments are to older adults' financial security. Of the total, 55.3 million were retired workers — roughly 80% of all beneficiaries. The average monthly check for retired workers was $2,008.31, making any state tax on those payments a significant expense.

Among Midwestern states, Illinois stands apart as one of the few states that exempts Social Security income from state taxation. Illinois does levy a flat income tax of 4.95%, according to the Illinois Department of Revenue, but it excludes Social Security and other retirement income sources such as pensions and IRAs from taxation. That exemption lightens the load for seniors. If Illinois applied its 4.95% flat income tax rate to the average retiree's monthly Social Security benefit of $2,008.31 — or approximately $24,100 annually — that would represent $1,193 in state taxes per year on Social Security alone.

America's retiree numbers are climbing, and tax policies matter more now. The U.S. Census Bureau reported the 65-and-older group jumped 3.1% to 61.2 million from July 2023 to July 2024, making retirees the fastest-growing age group in the country and amplifying the impact of state tax policy on a rapidly expanding cohort. As more Baby Boomers are retiring from the workforce, state rules on Social Security can mean the difference between a comfortable budget and one stretched too thin.

Illinois' retirement tax breaks stretch well past Social Security. The Illinois Department of Revenue Tax Facts 2014 showed that one in four state tax returns used a retirement income subtraction and that, between 2007 and 2012, the total exempted funds jumped 36%. That exceeds growth in both federal adjusted gross income and Illinois net taxable income over the same span. It points to more retirees using the exemption, gaining greater household spending power, and adding stability for older Illinoisans. 

The Illinois Policy Institute reported in 2024 that the average public pensioner received about $93,558 a year — $24,538 more than the average working resident earned. Unlike Wisconsin, which caps exclusions and sets special eligibility requirements, Illinois' exemption is straightforward. Retirees get the best retirement tax breaks without hoops to jump through.

Tax relief extends beyond income to property. Illinois retirees have an advantage with the Senior Citizens Homestead Exemption. It cuts property taxes on their main home. The exemption lowers the equalized assessed value (EAV) of eligible homes, which shrinks what gets taxed and helps protect retirees' accounts from rising inflation. According to the Illinois Department of Revenue, seniors aged 65 and older can receive a reduction of up to $5,000 in EAV in most counties. For homeowners in Cook County and surrounding areas, the reduction is even bigger — up to $8,000. This makes housing cheaper for retirees on fixed incomes, and it lowers the risk of running out of money while staying in their Illinois homes.

Illinois gives retirees more than just tax relief. The state joins the federal Supplemental Nutrition Assistance Program (SNAP). It gives food help to low-income seniors 60 and up who qualify. According to the Illinois Department of Human Services, in 2024, seniors got SNAP if their monthly household income stayed under $2,510 for one person or $3,406 for two. But they could add in medical and housing expenses, which will sometimes increase their benefits amount.

Illinois also runs programs like the Illinois Rx Card. This free statewide prescription discount card cuts medication costs for all residents, including seniors. Recreation and culture matter too. Illinois ranked fourth among WalletHub's list of the most fun states to live in 2025. The state has over 290 state parks and numerous museums, like the Dickson Mounds and the Lockport Gallery. Cities like Chicago and Springfield have strong arts scenes. These spots keep retirees active mentally and physically, which can cut healthcare bills over time.

Public transportation gets cheaper, too. The state supports programs like the Illinois Regional Transportation Authority's Reduced Fare Transit Program. It covers discounted fares for eligible residents in the Chicago metropolitan area. Eligible residents include Illinois residents age 65 or older, individuals with qualifying disabilities, Medicare cardholders, and veterans with service-connected disabilities. Seniors can apply through the RTA Fare Portal online for quick service. All these benefits work with Illinois' financial advantages to give retirees more financial security in their golden years.