Illinois Department of Revenue

                                                                                              January 2020
Publication 101
Income Exempt from Tax

The information in this publication      About this publication
is current as of the date of the 
publication. Please visit our website at The Constitution, treaties or statutes of the United States, and the Illinois Constitution 
tax.illinois.gov to verify you have the  exempt certain income from Illinois Income Tax. Illinois law also exempts income of 
most current revision.                   certain obligations of state and local governments from Illinois Income Tax.

This publication is written in the plain Publication 101, Income Exempt from Tax, provides a quick reference and a brief 
English style so the tax information is  explanation of income that is exempt from Illinois Income Tax. The objectives of 
easier to understand. As a result, we    Publication 101 are to
do not directly quote Illinois statutes   identify who is entitled to a subtraction of income exempt from Illinois Income Tax.
and the Illinois Administrative Code.     define income that is exempt from Illinois Income Tax as outlined in the Illinois 
The contents of this publication are      Income Tax Rules.
informational only and do not take 
                                          identify exceptions.
the place of statutes, rules, and court 
decisions. For many topics covered        explain how to claim a subtraction of exempt income on your Illinois Income Tax 
in this publication, we have provided     return.

a reference to the applicable section    This publication is reviewed on an annual basis and may not include the latest 
or part of the Illinois Administrative   changes in the Illinois Income Tax Rules. For more information regarding Illinois 
Code for further clarification or more   Income Tax exemptions, see the Illinois Income Tax Rules, 86 Illinois Administrative 
detail. All of the sections and parts    Code 100.2470. To obtain a copy of these rules, call 
referenced can be found in Title 86 of    1 800 356-6302 or 
the Code. 
                                          our TDD-telecommunications device for the deaf at 1 800 544-5304.

Taxpayer Bill of Rights
You have the right to call the Department of Revenue for help in resolving tax problems.
You have the right to privacy and confidentiality under most tax laws.
You have the right to respond, within specified time periods, to Department notices by asking questions, paying the amount 
due, or providing proof to refute the Department’s findings.
You have the right to appeal Department decisions, in many instances, within specified time periods, by asking for 
Department review, by filing a petition with the Illinois Independent Tax Tribunal, or by filing a complaint in circuit court.
If you have overpaid your taxes, you have the right, within specified time periods, to a credit (or, in some cases, a refund) of 
that overpayment.
For more information about these rights and other Department procedures, you may write us at the following address:
Problems Resolution Office
Illinois Department of Revenue
PO Box 19014
Springfield, IL  62794-9014

Get forms and other information faster and easier at tax.illinois.gov

                                                                         Income Exempt from Tax

Contents

General Information

 What income may I subtract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

 What if I have income from obligations of the United States Government? .............. 3

 What federally-taxable income is exempt from Illinois Income Tax by other 
 federal statutes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

 What other income is exempt from Illinois Income Tax by federal statutes? .............. 4

 What if I have distributions from money market trusts (mutual funds)? ................. 4

 What if I have interest from obligations of state and local governments 
 (municipal interest)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

 What other income is exempt from Illinois Income Tax by reason of Illinois statute? . . . . . . . 5

 What income is not exempt from Illinois Income Tax?  .............................. 6

 How do I figure the amount of exempt income I am entitled to subtract on my 
 Illinois Income Tax return?  ................................................... 6

 How do I get a refund of tax that I already paid in error on income that was not 
 taxable on my  Illinois Income Tax Return?  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Office Locations ............................................................. 8

For Information or Forms  .................................................... 8

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                                                                                           Income Exempt from Tax

General Information 

What income may I subtract?                                       What federally-taxable income is 
You are entitled to subtract an amount equal to all amounts       exempt from Illinois Income Tax by other 
that are exempt from income tax providing these amounts are       federal statutes? 
included in your Illinois base income. 
                                                                  Federal statutes exempt specific types of income from state 
If you receive income from bonds or other obligations that        income tax. The income from notes, bonds, debentures, and 
are exempt from Illinois Income Tax, the exempt amount            other similar obligations issued by the following is exempt 
you are entitled to claim is the interest net of bond premium     from Illinois Income Tax:
amortization.
                                                                   Banks for Cooperatives
                                                                   Commodity Credit Corporation  
                                                                   Farm Credit System Financial Assistance Corporation 
What if I have income from obligations                             (Financial Assistance Corporation) 
of the United States Government?                                   Federal Deposit Insurance Corporation
If you have income from stocks and obligations of the United       Federal Farm Credit Banks 
States Government that is included in your Illinois base 
income, you may subtract the total amount of income and            Federal Home Loan Banks 
interest on the obligations from your Illinois base income.        Federal Intermediate Credit Banks
“Obligations of the United States” are those obligations           Federal Land Banks and Federal Land Bank 
issued “to secure credit to carry on the necessary functions of    Association
government.” These exemptions are aimed at protecting the 
                                                                   
“Borrowing” and “Supremacy” clauses of the Constitution.           Federal Savings and Loan Insurance Corporation
                                                                    
Tax-exempt credit instruments                                      Financing Corporation (FICO)
 are written documents,                                            General Insurance Fund 
                                                                    Includes debentures issued under the War Housing 
 bear interest,                                                    Insurance Law; General Insurance Fund to acquire rental 
 are binding promises by the United States to pay specified        housing projects; or Armed Services Housing Mortgage 
sums at specified dates, and                                       Insurance Debentures issued by the General Insurance 
                                                                   Fund.
 have congressional authorization which also pledges 
the faith and credit of the United States in support of the        National Credit Union Administration Central Liquidity 
promise to pay.                                                    Facility
      If you have a governmental obligation that is                Production Credit Association
secondary, indirect, or contingent (e.g., a guaranty of a          Railroad Retirement Act 
nongovernmental obligor’s primary obligation to pay the principal 
amount and interest on a note), it is not exempt from income        Includes annuity and supplemental annuity payments as 
tax.                                                               qualified under the Railroad Retirement Act of 1974. Please 
                                                                   be sure to use the line specified on your Illinois Income Tax 
The following types of income are exempt from Illinois Income 
                                                                   return for this item.
Tax:
                                                                   
 Interest on U.S. Treasury bonds, notes, bills, certificates,      Railroad Unemployment Insurance Act  
and savings bonds                                                   Includes unemployment benefits paid pursuant to the 
                                                                   Railroad Unemployment Insurance Act.
 Income from GSA Public Building Trust Participation 
Certificates: First Series, Series A through E; Second             Resolution Funding Corporation
Series, Series F; Third Series, Series G; Fourth Series, 
Series H and I

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                                                                                      Income Exempt from Tax

  Special Food Service Program                                     in both exempt and nonexempt obligations. The amount 
  Includes assistance to children under the Special Food           represented by the percentage of the distribution that the 
  Service Program.                                                 mutual fund identifies as exempt may be subtracted.
  Student Loan Marketing Association                               in those obligations listed even if the fund does not identify 
                                                                   an exempt amount or percentage. You may figure your 
  Tennessee Valley Authority                                       subtraction by using a fraction. Use the amount invested by 
  United States Postal Service                                     the fund in state-exempt U.S. obligations as the numerator. 
                                                                   Use the fund’s total investment as the denominator. Multiply 
                                                                   the total distribution by the fraction. 

                                                                          Use the year-end amounts to figure the fraction 
What other income is exempt from 
                                                                   if the percentage ratio has remained constant throughout 
Illinois Income Tax by federal statutes?                           the year. If the percentage ratio has not remained constant, 
                                                                   take the average of the ratios from the fund’s quarterly 
The following items are also exempt from Illinois Income 
                                                                   financial reports.
Tax, but the income received is not presently included in 
your federal taxable income. You must list these federally 
tax-exempt items as additions on your Illinois Income Tax 
return. Then, you may list them as subtractions when figuring 
your Illinois base income.                                       What if I have interest from obligations 
  Bonds issued by the government of Guam                         of state and local governments 
                                                                 (municipal interest)?
  Bonds issued by the government of Puerto Rico
  Bonds issued by the government of the Virgin Islands           Income from state and local obligations (municipal interest), 
                                                                 which is tax-exempt for federal purposes, is not exempt 
  Bonds issued by the government of American Samoa               from Illinois Income Tax except where legislation has been 
  Bonds issued by the government of the Northern                 specifically adopted to provide for an exemption. You must 
  Mariana Islands                                                report all federally tax-exempt income as an addition on your 
                                                                 Illinois Income Tax return. You may then subtract income 
  Mutual mortgage insurance fund bonds                           reported from only those bonds or obligations listed below to 
  Income from such debentures is issued in exchange              which you own title. Income from these bonds is not exempt 
  for property covered by mortgages insured after                if the bonds are owned indirectly through owning shares in a 
  February 3, 1988.                                              mutual fund.
                                                                 If you are unable to determine whether your income is 
                                                                 taxable, you should contact the issuer of the bond.
What if I have distributions from money                          Income from bonds and notes either issued by, received 
                                                                 from, or as the result of the following is exempt from Illinois 
market trusts (mutual funds)?                                    Income Tax: 
If you have distributions from money market trusts (even if        Illinois Housing Development Authority
the obligations are owned indirectly through owning shares          Does not include housing-related commercial facilities 
in a mutual fund), you may subtract that portion of income         notes and bonds.
received from any of the obligations that are listed in this 
publication under “What if I have income from obligations          Export Development Act of 1983
of the United States Government?” and “What income is              Illinois Development Finance Authority Act
exempt from Illinois Income Tax by other federal statutes?” 
                                                                    Includes only bonds and notes issued pursuant to Sections 
Your distribution is exempt from Illinois Income Tax if the fund 
                                                                   7.50 - 7.61, specifically, venture fund and infrastructure 
invests
                                                                   bonds.
  exclusively in these state tax exempt obligations. The entire 
  amount of the distribution (income) from the fund may be 
  subtracted. 

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                                                                                         Income Exempt from Tax

  Quad Cities Regional Economic Development Authority         Upper Illinois River Valley Development Authority 
  Includes only bonds and notes that the Authority has         Includes only bonds issued under the Upper Illinois River 
  declared to be exempt.                                      Valley Development Authority Act.
  College Savings Bonds                                       Illinois Urban Development Authority 
   Includes only bonds and notes issued under the General      Includes only bonds issued under the Illinois Urban 
  Obligation Bond Act in accordance with the Baccalaureate    Development Authority Act.
  Savings Act.                                                Western Illinois Economic Development Authority 
  Illinois Sports Facilities Authority                         Includes only bonds issued under the Western Illinois 
                                                              Economic Development Authority Act.
  Higher Education Student Assistance Act 
  Includes only bonds and notes issued on or after            Downstate Illinois Sports Facilities Authority 
  September 2, 1988.                                           Includes only bonds issued under the Downstate Illinois 
                                                              Sports Facilities Authority Act.
  Illinois Development Finance Authority Act
  Includes only bonds and notes issued pursuant to Sections   Will-Kankakee Regional Development Authority 
  7.80 - 7.87 under the Asbestos Abatement Finance Act.        Includes only bonds issued under the Will-Kankakee 
                                                              Regional Development Authority Law.
  Rural Bond Bank Act
                                                              Tri-County River Valley Development Authority 
  Illinois Development Finance Authority 
                                                               Includes only bonds issued under the Tri-County River 
  Includes only bonds and notes issued in accordance with 
                                                              Valley Development Authority Law.
  the Asbestos Abatement Finance Act.
                                                              New Harmony Bridge Authority 
  Quad Cities Interstate Metropolitan Authority 
                                                               Includes only bonds issued under the New Harmony Bridge 
  Includes only bonds and notes issued under the Quad 
                                                              Authority Act.
  Cities Interstate Metropolitan Authority Act. 
                                                              New Harmony Bridge Bi-State Commission 
  Southwestern Illinois Development Authority
                                                               Includes only bonds issued under the New Harmony Bridge 
  Includes only bonds and notes issued pursuant to the 
                                                              Interstate Compact Act.
  Southwestern Illinois Development Authority Act.
  Illinois Finance Authority 
  Includes only bonds and notes issued under the Local 
  Government Article and the Financially Distressed City     What other income is exempt from 
  Program in the Illinois Finance Authority Act.             Illinois Income Tax by reason of Illinois 
  Illinois Finance Authority - Illinois Power Agency         statute?
  Includes only bonds issued by the Other Powers Article of  The following types of other income are exempt from Illinois 
  the Illinois Finance Authority Act.                        Income Tax:
  Central Illinois Economic Development Authority             Income earned on investments in the Home Ownership 
  Includes only bonds issued under the Central Illinois       Made Easy Program.
  Economic Development Authority Act.
                                                              Income earned by certain trust accounts established under 
  Eastern Illinois Economic Development Authority             the Illinois Pre-Need Cemetery Sales Act. Section 16(f) of 
  Includes only bonds issued under the Eastern Illinois       the Illinois Pre-Need Cemetery Sales Act provides that: 
  Economic Development Authority Act.                         “because it is not known at the time of deposit or at the time 
                                                              that income is earned on the trust account to whom the 
  Southeastern Illinois Economic Development Authority 
                                                              principal and the accumulated earnings will be distributed, 
  Includes only bonds issued under the Southeastern Illinois  for purposes of determining the Illinois Income Tax due on 
  Economic Development Authority Act.                         these trust funds, the principal and any accrued earnings 
  Southern Illinois Economic Development Authority            or losses relating to each individual account shall be held in 
  Includes only bonds issued under the Southern Illinois      suspense until the final determination is made as to whom 
  Economic Development Authority Act.                         the account shall be paid.”

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                                                                                        Income Exempt from Tax

  Income in the form of education loan repayments made 
 for primary care physicians who agree to practice in            married filing jointly) to qualified ABLE accounts. 
 designated shortage areas for a specified period of time 
                                                                What income is not exempt from Illinois 
 under the terms of the Family Practice Residency Act.
                                                                Income Tax? 
  Income earned by nuclear decommissioning trusts 
 established pursuant to Section 8-508.1 of the Public          The following types of income are not exempt from Illinois 
 Utilities Act. The terms “decommissioning trust” or “trust”    Income Tax:
 mean a fiduciary account in a bank or other financial            Income from securities known as Government National 
 institution established to hold the decommissioning funds       Mortgage Association (GNMA) “Pass-Through Securities” 
 provided by the Public Utilities Act for the eventual purpose   or GNMA “Mortgage-Backed Securities” and income 
 of paying decommissioning costs, which shall be separate        from debentures, notes, and bonds issued by the 
 from all other accounts and assets of the public utility        Federal National Mortgage Association (FNMA) including 
 establishing the trust.                                         mortgage-backed bonds
   Reparations or other amounts received as a victim              Interest from Federal Home Loan Mortgage Corporation 
 of persecution for racial or religious reasons by Nazi          (FHLMC) securities
 Germany or any other Axis regime that are included in 
 your federal taxable income. Also include any reparations        Daily Investment Deposit Accounts (DID) under Federal 
 or other amounts received as an heir of such victim that        Home Loan Banks
 are included in your federal taxable income.                     Accumulated interest on Internal Revenue Service tax 
  Income earned from college savings programs under              refunds
 Section 55 of the Illinois Prepaid Tuition Act or Section        Income from U.S. securities acquired by a taxpayer under 
 16.5 of the State Treasurer Act, except distributions           a repurchase agreement (repo) with a bank or similar 
 that are not used for tuition, fees, school supplies,           financial organization. Such agreements are to be treated 
 and other qualified expenses. These programs are                as loans. 
 commonly known as the Bright Start and Bright Directions 
 College Savings Programs and the College Illinois               For example: You loan money to the bank and receive 
 prepaid tuition program. For tax years beginning on or          interest in return. The securities subject to repurchase by 
 after January 1, 2007, this exemption also applies to any       the bank serve as collateral for the loan. The bank remains 
 plan qualifying under Section 529 of the Internal Revenue       legally entitled to receive the interest payments from the 
 Code that complies with the disclosure requirements of the      issuing authority and remains the actual owner of the 
 College Savings Plan Network and that annually informs          securities. Any tax benefit attributable to the exempt income 
 Illinois residents about in-state programs.                     paid by the issuing authority accrues to the bank and not to 
                                                                 you.
              For tax years ending on or after December 31, 
 2002, and before December 31, 2005, contributions to the 
 Bright Start program under the State Treasurer Act are 
 deductible.
                                                                How do I figure the amount of exempt 
  For tax years ending on or after December 31, 2005, up to 
                                                                income I am entitled to subtract on my 
 $10,000 in contributions ($20,000 if married filing jointly) 
 to the Bright Start or Bright Directions programs and the      Illinois Income Tax Return? 
 College Illinois prepaid tuition fund are deductible. 
                                                                First, you must be sure that the item of income is included in 
  Income earned from qualified ABLE accounts under              your total income as shown on your Illinois Income Tax return. 
 Section 16.6 of the State Treasurer Act for tax years          Most items are automatically included in your total Illinois 
 beginning on or after January 1, 2018 and prior to             income because they are included in your federal gross 
 January 1, 2023. This is limited to a maximum of $10,000       income, which is a part of your total Illinois income. 
 and exempts amounts excluded from gross income 
                                                                For example: Interest on U.S. Treasury notes is included in 
 under Section 529(c)(3)(C)(i) or Section 529A(c)(1)
                                                                your federal gross income and is, therefore, included in your 
 (C) of the Internal Revenue Code.  Contributions made 
                                                                total income on your Illinois Income Tax return.
 by an employer on behalf of an employee, or matching 
 contributions made by an employee, shall be treated as         Other federally tax-exempt items that were not included on 
 made by the employee.                                          your federal return must be included as an addition on your 
                                                                Illinois Income Tax return when figuring your total Illinois 
  The credit is limited to $10,000 in contributions ($20,000 if 

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                                                               Income Exempt from Tax

income. 
For example: Interest from an Illinois Housing Development 
Authority bond (municipal interest) would not be included 
in your federal gross income but must be included as an 
addition on your Illinois Income Tax return.
Then, you must determine which specific items of income 
are exempt from Illinois Income Tax and report these items 
on the specified lines on your Illinois Income Tax return and 
Schedule M.

         The amount of exempt income that you subtract 
must be reduced by any related bond premium amortization 
that you deducted federally.

How do I get a refund of tax that I 
already paid in error on income that was 
not taxable on my Illinois Income Tax 
Return? 
If you paid Illinois income tax on state income that is exempt 
from Illinois tax, you may file an amended return to claim a 
refund for any year still within the statute of limitations. 

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                                                                                              Income Exempt from Tax

Office Locations

                                         Suburban North Regional Building
                                         9511 Harrison Street FA 203
                                         Des Plaines, Illinois 60016-1563

200 South Wyman Street
Rockford, Illinois 61101-1237                                                                 555 West Monroe Street
                                                                                              Suite 1100
                                                                                              Chicago, Illinois 60661

                                                                                              Willard Ice Building
                                                                                              101 West Jefferson
                                                                                              Springfield, Illinois 62702-5145

15 Executive Drive
Business Center One, Suite 2
Fairview Heights, Illinois 62208-1331

                         2309 W. Main, Suite 114
                         Marion, Illinois 62959-1196

Contact Information Visit our website at tax.illinois.gov. For specific phone number and email contacts see our 
                         Contact Us page. 
                    Call us at 1 800 732-8866 or 217 782-3336.
                    Call our TDD (telecommunications device for the deaf) at 1 800 544-5304.
                    Write us at Illinois Department of Revenue, PO Box 19001, Springfield, IL  62794-9001.
                    Call our 24-hour Forms Order Line at 1 800 356-6302. 

                            Printed by authority of the State of Illinois, web only, one copy.
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