Military Retirement in Illinois: Complete 2026 Tax Guide
100% tax-free retirement + Navy's only boot camp
🎯 Quick Summary: Illinois Military Retirement Taxes (2026)
- ✓ Military retirement pay: 100% EXEMPT from state income tax
- ✓ VA disability payments: Tax-free (federal and state)
- ✓ Survivor Benefit Plan (SBP): 100% exempt
- ✓ Social Security: Also 100% exempt in Illinois
- ⚠ Property tax: High, but exemptions for disabled veterans
Why Illinois Is Excellent for Military Retirement Taxes
Illinois offers one of the best tax situations for military retirees in the nation. The state exempts 100% of military retirement pay from state income tax, and as a bonus, Illinois also exempts 100% of Social Security benefits. For retirees receiving both, this combination can save thousands of dollars annually.
The state is home to Naval Station Great Lakes—the Navy's only boot camp—plus Scott Air Force Base (headquarters of Air Mobility Command) and the historic Rock Island Arsenal. These installations create strong military communities and excellent transition opportunities for retiring service members.
2026 Illinois Military Retirement Tax Breakdown
State Income Tax on Military Retirement Pay
🎉 100% EXEMPT!
Illinois exempts 100% of military retirement pay from state income tax. This includes:
- All military pensions (regardless of rank or years served)
- Survivor Benefit Plan (SBP) payments
- Reserve/Guard retirement pay
- No age restrictions or income limits
Social Security Benefits
✓ Also 100% Exempt!
Illinois does not tax Social Security benefits at all. Combined with the military retirement exemption, retirees can receive significant tax-free income.
Illinois State Income Tax (2026)
Flat rate: 4.95% on all taxable income
While military retirement is exempt, other income (civilian jobs, investments, traditional IRA withdrawals) is taxed at the flat 4.95% rate.
Other Tax Benefits for Illinois Veterans (2026)
| Benefit | Details |
|---|---|
| Property Tax Exemption |
|
| Sales Tax | 6.25% state rate + local taxes (total 8-11% in most areas). No special veteran exemption. |
| Vehicle Registration | Free standard plates for disabled veterans. Special veteran plates available. |
| State Parks | Free camping for disabled veterans at Illinois state parks. |
Real Example: How Much You'll Save in Illinois (2026)
Example: E-7 Retired After 20 Years, Age 65
- • Military retirement pay: $33,600/year
- • Social Security: $24,000/year
- • VA disability (40%): $8,400/year
- • Total income: $66,000
Illinois Tax
Military retirement: $0 (exempt)
Social Security: $0 (exempt)
VA disability: $0 (exempt)
State tax: $0
California Comparison
Would tax most of this income
State tax: ~$2,500+
Annual Illinois Savings: $2,500+
🎓 Education Benefits for Veterans & Families in Illinois
Illinois Veteran Grant (IVG)
- FREE tuition at all Illinois public universities and community colleges
- Requires 1+ year of active federal duty with honorable discharge
- Must be Illinois resident within 6 months of separation
- Covers up to 120 credit hours (equivalent to bachelor's degree)
- Can be used concurrently with GI Bill for living expenses
MIA/POW Scholarship
- Full tuition + fees for dependents of MIA/POW service members
- Also covers children of veterans who died or are 100% disabled
- Available at any Illinois public university
Illinois National Guard Grant
- 100% tuition waiver for Illinois National Guard members
- Great option for retirees who join the Guard for additional benefits
- Available at all public universities in Illinois
In-State Tuition
- All veterans qualify for in-state tuition immediately
- Yellow Ribbon Program widely available
- Strong veteran services at U of I, Illinois State, SIU
Cost of Living in Illinois for Military Retirees (2026)
Illinois cost of living varies significantly by region:
| Category | Chicago Area | Downstate (Scott AFB) |
|---|---|---|
| Overall | +7% above average | -8% below average |
| Housing | Median $350,000 | Median $180,000 |
| Property Tax | 2.1-2.5% (very high) | 1.8-2.2% (high) |
| Groceries | Average | -5% below average |
⚠️ Important: Property Taxes
Illinois has some of the highest property taxes in the nation (2nd highest). On a $250,000 home, expect to pay $5,000-$6,000+ annually. This is the main financial drawback of living in Illinois. However, disabled veterans can receive significant exemptions.
Major Military Installations in Illinois
⚓ Naval Station Great Lakes
- Location: North Chicago
- Navy's ONLY boot camp
- Trains 40,000+ recruits annually
- Large civilian workforce
- Navy Exchange, Commissary
- Captain James A. Lovell Federal Health Care Center
✈️ Scott Air Force Base
- Location: Belleville (St. Louis metro)
- Air Mobility Command Headquarters
- U.S. Transportation Command
- 18th Air Force
- Major employer: 13,000+ personnel
- Excellent commissary, BX, and facilities
🏭 Rock Island Arsenal
- Location: Rock Island
- Largest government-owned weapons manufacturing arsenal
- Army Sustainment Command
- First Army Division West
- 6,000+ employees
🛡️ Illinois National Guard
- Camp Lincoln (Springfield)
- Multiple Army National Guard armories
- Air National Guard units in Peoria, Springfield
- Good opportunities for retirees to continue service
Best Cities for Military Retirees in Illinois
🥇 Belleville / O'Fallon / Shiloh (Scott AFB Area)
Best overall for military retirees. Affordable housing ($180K-$280K), strong military community, easy base access, St. Louis amenities across the river (no state income tax on purchases in Missouri). Cost of living 8% below national average.
🥈 North Chicago / Waukegan / Gurnee (Great Lakes Area)
Near Naval Station Great Lakes. More expensive than downstate but access to Chicago amenities. Strong Navy community. Lovell Federal Health Care Center provides excellent VA/DoD healthcare.
🥉 Rock Island / Moline / Davenport (Quad Cities)
Near Rock Island Arsenal. Very affordable, slower pace of life. Quad Cities straddles Illinois/Iowa border. Housing very affordable ($150K-$220K).
Springfield
State capital with good VA services, affordable living, central location. No major base but National Guard presence. Good for retirees who don't need base access.
VA Healthcare in Illinois
🏥 VA Medical Facilities in Illinois
- • Captain James A. Lovell FHCC: North Chicago - Joint VA/DoD facility near Great Lakes
- • Jesse Brown VA Medical Center: Chicago - Major facility
- • Edward Hines Jr. VA Hospital: Hines (Chicago suburb) - One of the largest in the country
- • Marion VA Medical Center: Southern Illinois
- • Danville VA Medical Center: East-central Illinois
- • 15+ Community-Based Outpatient Clinics statewide
TRICARE: Excellent network coverage throughout Illinois. Scott AFB has a military treatment facility for TRICARE Prime.
Pros and Cons of Retiring in Illinois
✅ Pros
- ✓ 100% military retirement exemption
- ✓ 100% Social Security exemption
- ✓ Illinois Veteran Grant (free tuition)
- ✓ Strong military presence at multiple bases
- ✓ Excellent VA healthcare system
- ✓ Affordable living downstate
- ✓ Four seasons, diverse geography
- ✓ Central location - easy to travel
- ✓ Good property tax exemptions for disabled vets
❌ Cons
- ✗ Very high property taxes (2nd highest in US)
- ✗ High sales tax (8-11% total)
- ✗ Cold, snowy winters
- ✗ State fiscal problems/pension concerns
- ✗ Chicago area expensive
- ✗ High gas taxes
- ✗ Some areas with higher crime rates
Frequently Asked Questions
Is Illinois financially stable for retirees?
Illinois has well-publicized pension and budget issues at the state level. However, these don't directly affect federal military retirement benefits. The military retirement exemption is established state law. Many retirees live comfortably in Illinois, especially in affordable downstate areas.
How do I qualify for the Illinois Veteran Grant?
You need 1+ year of active federal military service, honorable discharge, and must become an Illinois resident within 6 months of separation. Apply through the Illinois Student Assistance Commission (ISAC). The grant covers tuition only; use GI Bill for housing/expenses.
Should I retire near Scott AFB or Great Lakes?
Scott AFB area is better for most retirees—much more affordable housing, lower cost of living, and access to St. Louis amenities. Great Lakes area is better if you have Navy connections, want Chicago access, or value the joint VA/DoD healthcare facility.
Can I avoid Illinois property taxes?
If you're 70%+ disabled, you can get a full exemption on up to $250,000 of assessed value, which effectively eliminates property tax for most homes. Otherwise, consider renting instead of owning, or living just across the border in Missouri (near Scott AFB) or Indiana.
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