Illinois Department of Revenue

                                                                                            December 2023
  Publication 101
  Income Exempt from Tax

About this publication
The Constitution, treaties or statutes of the United States, and the Illinois Constitution exempt certain income from 
Illinois Income Tax. Illinois law also exempts income of certain obligations of state and local governments from 
Illinois Income Tax.
Publication 101, Income Exempt from Tax, provides a quick reference and a brief explanation of income that is 
exempt from Illinois Income Tax. The objectives of Publication 101 are to
• identify who is entitled to a subtraction of income exempt from Illinois Income Tax.
• define income that is exempt from Illinois Income Tax as outlined in the Illinois Income Tax Rules.
• identify exceptions.
• explain how to claim a subtraction of exempt income on your Illinois Income Tax return.
This publication is reviewed on an annual basis and may not include the latest changes in the Illinois Income Tax 
Rules. For more information regarding Illinois Income Tax exemptions, see the Illinois Income Tax Rules, 86 Illinois 
Administrative Code 100.2470. To obtain a copy of these rules, call 
•  1 800 356-6302 or
• our TTY at 1 800 544-5304.

The information in this publication is current as of the date of the publication. Please visit our website at 
tax.illinois.gov to verify you have the most current revision.
This publication is written so the tax information is easier to understand. As a result, we do not directly quote 
Illinois statutes and the Illinois Administrative Code. The contents of this publication are informational only and 
do not take the place of statutes, rules, and court decisions. For many topics covered in this publication, we have 
provided a reference to the applicable section or part of the Illinois Administrative Code for further clarification or 
more detail. All of the sections and parts referenced can be found in Title 86 of the Code. 

Taxpayer Bill of Rights
You have the right to call the Illinois Department of Revenue (IDOR) 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 IDOR notices by asking questions, paying the 
amount due, or providing proof to refute IDOR’s findings.
You have the right to appeal IDOR decisions, in many instances, within specified time periods, by asking for IDOR 
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 IDOR procedures, you may write us at the following address:
Problems Resolution Office
Illinois Department of Revenue
PO Box 19014
Springfield, IL  62794-9014

   For information or forms, visit IDOR’s website at: tax.illinois.gov

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)? ........................................................................................................................5
 What other income is exempt from Illinois Income Tax by reason of Illinois statute? ...................... 6
 What income is not exempt from Illinois Income Tax? ..................................................................... 7
 How do I figure the amount of exempt income I am entitled to subtract on my 
 Illinois Income Tax Return? .............................................................................................................. 7
 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? ................................................................................ 8

Office Locations ............................................................................................................................................... 9

Contact Information ....................................................................................................................................... 9

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General Information 

What income may I subtract?
You are entitled to subtract an amount equal to all amounts that are exempt from income tax providing these 
amounts are included in your Illinois base income. 
If you receive income from bonds or other obligations that are exempt from Illinois Income Tax, the exempt amount 
you are entitled to claim is the interest net of bond premium amortization.

What if I have income from obligations of the United States Government?
If you have income from stocks and obligations of the United States Government that is included in your Illinois 
base income, you may subtract the total amount of income and interest on the obligations from your Illinois base 
income.
“Obligations of the United States” are those obligations issued “to secure credit to carry on the necessary functions 
of government.” These exemptions are aimed at protecting the “Borrowing” and “Supremacy” clauses of the 
Constitution. 
Tax-exempt credit instruments 
• are written documents,
• bear interest,
• are binding promises by the United States to pay specified sums at specified dates, and 
• have congressional authorization which also pledges the faith and credit of the United States in support of the 
  promise to pay. 
Note: If you have a governmental obligation that is secondary, indirect, or contingent (e.g., a guaranty of a 
nongovernmental obligor’s primary obligation to pay the principal amount and interest on a note), it is not exempt 
from income tax.
The following types of income are exempt from Illinois Income Tax:
• Interest on U.S. Treasury bonds, notes, bills, certificates, and savings bonds
• Income from GSA Public Building Trust Participation Certificates: First Series, Series A through E; Second 
  Series, Series F; Third Series, Series G; Fourth Series, Series H and I

What federally-taxable income is exempt from Illinois Income Tax by other federal 
statutes? 
Federal statutes exempt specific types of income from state income tax. The income from notes, bonds, 
debentures, and other similar obligations issued by the following is exempt from Illinois Income Tax:
• Banks for Cooperatives
• Commodity Credit Corporation  
• Farm Credit System Financial Assistance Corporation (Financial Assistance Corporation) 
• Federal Deposit Insurance Corporation
• Federal Farm Credit Banks 
• Federal Home Loan Banks 
• Federal Intermediate Credit Banks
• Federal Land Banks and Federal Land Bank Association
• Federal Savings and Loan Insurance Corporation
• Financing Corporation (FICO)

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• General Insurance Fund  
  Includes debentures issued under the War Housing Insurance Law; General Insurance Fund to acquire rental 
  housing projects; or Armed Services Housing Mortgage Insurance Debentures issued by the General Insurance 
  Fund.
• National Credit Union Administration Central Liquidity Facility
• Production Credit Association
• Railroad Retirement Act  
  Includes annuity and supplemental annuity payments as qualified under the Railroad Retirement Act of 1974. 
  Please be sure to use the line specified on your Illinois Income Tax return for this item.
• Railroad Unemployment Insurance Act   
  Includes unemployment benefits paid pursuant to the Railroad Unemployment Insurance Act.
• Resolution Funding Corporation
• Special Food Service Program   
  Includes assistance to children under the Special Food Service Program.
• Student Loan Marketing Association
• Tennessee Valley Authority 
• United States Postal Service

What other income is exempt from Illinois Income Tax by federal statutes?
The following items are also exempt from Illinois Income 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.
• Bonds issued by the government of Guam
• Bonds issued by the government of Puerto Rico
• Bonds issued by the government of the Virgin Islands
• Bonds issued by the government of American Samoa
• Bonds issued by the government of the Northern Mariana Islands 
• Mutual mortgage insurance fund bonds 
  Income from such debentures is issued in exchange for property covered by mortgages insured after 
  February 3, 1988.

What if I have distributions from money market trusts (mutual funds)? 
If you have distributions from money market trusts (even if the obligations are owned indirectly through owning 
shares in a mutual fund), you may subtract that portion of income received from any of the obligations that are 
listed in this publication under “What if I have income from obligations of the United States Government?”, “What 
federally-taxable income is exempt from Illinois Income Tax by other federal statutes?”, and “What other income is 
exempt from Illinois Income Tax by federal statutes?” Your distribution is exempt from Illinois Income Tax if the fund 
invests
• exclusively in these state tax exempt obligations. The entire amount of the distribution (income) from the fund 
  may be subtracted. 
• in both exempt and nonexempt obligations. The amount represented by the percentage of the distribution that 
  the mutual fund identifies as exempt may be subtracted.
• in those obligations listed even if the fund does not identify an exempt amount or percentage. You may figure 
  your subtraction by using a fraction. Use the amount invested by 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.  

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  Note: Use the year-end amounts to figure the fraction if the percentage ratio has remained constant throughout 
  the year. If the percentage ratio has not remained constant, take the average of the ratios from the fund’s 
  quarterly financial reports.

What if I have interest from obligations of state and local governments (municipal 
interest)?
Income from state and local obligations (municipal interest), which is tax-exempt for federal purposes, is not 
exempt from Illinois Income Tax except where legislation has been specifically adopted to provide for an exemption. 
You must report all federally tax-exempt income as an addition on your Illinois Income Tax return. You may then 
subtract income reported from only those bonds or obligations listed below to which you own title. Income from 
these bonds is not exempt if the bonds are owned indirectly through owning shares in a mutual fund.
If you are unable to determine whether your income is taxable, you should contact the issuer of the bond.
Income from bonds and notes either issued by, received from, or as the result of the following is exempt from Illinois 
Income Tax: 
• Illinois Housing Development Authority 
  Does not include housing-related commercial facilities notes and bonds.
• Export Development Act of 1983
• Illinois Development Finance Authority Act 
  Includes only bonds and notes issued pursuant to Sections 7.50 - 7.61, specifically, venture fund and 
  infrastructure bonds.
• Quad Cities Regional Economic Development Authority 
  Includes only bonds and notes that the Authority has declared to be exempt.
• College Savings Bonds 
  Includes only bonds and notes issued under the General Obligation Bond Act in accordance with the 
  Baccalaureate Savings Act.
• Illinois Sports Facilities Authority 
• Higher Education Student Assistance Act  
  Includes only bonds and notes issued on or after September 2, 1988. 
• Illinois Development Finance Authority Act 
  Includes only bonds and notes issued pursuant to Sections 7.80 - 7.87 under the Asbestos Abatement Finance 
  Act.
• Rural Bond Bank Act
• Illinois Development Finance Authority  
  Includes only bonds and notes issued in accordance with the Asbestos Abatement Finance Act.
• Quad Cities Interstate Metropolitan Authority  
  Includes only bonds and notes issued under the Quad Cities Interstate Metropolitan Authority Act. 
• Southwestern Illinois Development Authority 
  Includes only bonds and notes issued pursuant to the Southwestern Illinois Development Authority Act.
• Illinois Finance Authority  
  Includes only bonds and notes issued under the Local Government Article and the Financially Distressed City 
  Program in the Illinois Finance Authority Act.
• Illinois Finance Authority - Illinois Power Agency  
  Includes only bonds issued by the Other Powers Article of the Illinois Finance Authority Act.

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• Central Illinois Economic Development Authority  
  Includes only bonds issued under the Central Illinois Economic Development Authority Act.
• Eastern Illinois Economic Development Authority  
  Includes only bonds issued under the Eastern Illinois Economic Development Authority Act.
• Southeastern Illinois Economic Development Authority  
  Includes only bonds issued under the Southeastern Illinois Economic Development Authority Act.
• Southern Illinois Economic Development Authority  
  Includes only bonds issued under the Southern Illinois Economic Development Authority Act.
• Upper Illinois River Valley Development Authority  
  Includes only bonds issued under the Upper Illinois River Valley Development Authority Act.
• Illinois Urban Development Authority  
  Includes only bonds issued under the Illinois Urban Development Authority Act.
• Western Illinois Economic Development Authority  
  Includes only bonds issued under the Western Illinois Economic Development Authority Act.
• Downstate Illinois Sports Facilities Authority  
  Includes only bonds issued under the Downstate Illinois Sports Facilities Authority Act.
• Will-Kankakee Regional Development Authority  
  Includes only bonds issued under the Will-Kankakee Regional Development Authority Law.
• Tri-County River Valley Development Authority  
  Includes only bonds issued under the Tri-County River Valley Development Authority Law.
• New Harmony Bridge Authority  
  Includes only bonds issued under the New Harmony Bridge Authority Act.  
  Note: For tax years beginning on or after August 19, 2023, the bonds issued by the New Harmony Bridge 
  Authority are no longer eligible for income tax exemption.
• New Harmony Bridge Bi-State Commission  
  Includes only bonds issued under the New Harmony Bridge Interstate Compact Act.  
  Note: For tax years beginning on or after August 19, 2023, the bonds issued by the New Harmony Bridge 
  Bi-State Commission are no longer eligible for income tax exemption.

What other income is exempt from Illinois Income Tax by reason of Illinois statute?
The following types of other income are exempt from Illinois Income Tax:
• Income earned by certain trust accounts established under the Illinois Pre-Need Cemetery Sales Act or the 
  Illinois Funeral or Burial Funds Act. Section 16(f) of the Illinois Pre-Need Cemetery Sales Act and Section 
  4a(c) of the Illinois Funeral or Burial Funds Act provide that: “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 principal and the accumulated earnings 
  will be distributed, for purposes of determining the Illinois Income Tax due on these trust funds, the principal 
  and any accrued earnings or losses relating to each individual account shall be held in suspense until the final 
  determination is made as to whom the account shall be paid.”
• Income in the form of education loan repayments made for primary care physicians who agree to practice 
  in designated shortage areas for a specified period of time under the terms of the Underserved Health Care 
  Provider Workforce Act.
• Income earned by nuclear decommissioning trusts established pursuant to Section 8-508.1 of the Public Utilities 
  Act. The terms “decommissioning trust” or “trust” mean a fiduciary account in a bank or other financial institution 
  established to hold the decommissioning funds provided by the Public Utilities Act for the eventual purpose of 
  paying decommissioning costs, which shall be separate from all other accounts and assets of the public utility 
  establishing the trust.
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• Reparations or other amounts received as a victim of persecution for racial or religious reasons by Nazi 
  Germany or any other Axis regime that are included in your federal taxable income. Also include any reparations 
  or other amounts received as an heir of such victim that are included in your federal taxable income. 
• Income earned from college savings programs under Section 55 of the Illinois Prepaid Tuition Act or Section 
  16.5 of the State Treasurer Act, except distributions that are not used for tuition, fees, school supplies, and 
  other qualified expenses. These programs are commonly known as the Bright Start and Bright Directions 
  College Savings Programs and the College Illinois prepaid tuition program. For tax years beginning on or after 
  January 1, 2007, this exemption also applies to any plan qualifying under Section 529 of the Internal Revenue 
  Code that complies with the disclosure requirements of the College Savings Plan Network and that annually 
  informs Illinois residents about in-state programs.  
  Note: 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.  
  For tax years ending on or after December 31, 2005, up to $10,000 in contributions ($20,000 if married 
  filing jointly) to the Bright Start or Bright Directions programs and the College Illinois prepaid tuition fund are 
  deductible. 
• Income earned from qualified ABLE accounts under Section 16.6 of the State Treasurer Act for tax years 
  beginning on or after January 1, 2018 and prior to January 1, 2028. This is limited to a maximum of $10,000 
  and exempts amounts excluded from gross income under Section 529(c)(3)(C)(i) or Section 529A(c)(1)(C) 
  of the Internal Revenue Code.  Contributions made by an employer on behalf of an employee, or matching 
  contributions made by an employee, shall be treated as made by the employee.  
  The credit is limited to $10,000 in contributions ($20,000 if married filing jointly) to qualified ABLE accounts. 

What income is not exempt from Illinois Income Tax? 
The following types of income are not exempt from Illinois Income Tax:
• Income from securities known as Government National Mortgage Association (GNMA) “Pass-Through 
  Securities” or GNMA “Mortgage-Backed Securities” and income from debentures, notes, and bonds issued by 
  the Federal National Mortgage Association (FNMA) including mortgage-backed bonds
• Interest from Federal Home Loan Mortgage Corporation (FHLMC) securities
• Daily Investment Deposit Accounts (DID) under Federal Home Loan Banks
• Accumulated interest on Internal Revenue Service tax refunds
• Income from U.S. securities acquired by a taxpayer under a repurchase agreement (repo) with a bank or similar 
  financial organization. Such agreements are to be treated as loans.  
  For example: You loan money to the bank and receive interest in return. The securities subject to repurchase 
  by the bank serve as collateral for the loan. The bank remains legally entitled to receive the interest payments 
  from the issuing authority and remains the actual owner of the securities. Any tax benefit attributable to the 
  exempt income paid by the issuing authority accrues to the bank and not to you.

How do I figure the amount of exempt income I am entitled to subtract on my Illinois 
Income Tax Return? 
First, you must be sure that the item of income is included in your total income as shown on your Illinois Income 
Tax return. Most items are automatically included in your total Illinois income because they are included in your 
federal gross income, which is a part of your total Illinois income. 
For example: Interest on U.S. Treasury notes is included in your federal gross income and is, therefore, included in 
your total income on your Illinois Income Tax return.
Other federally tax-exempt items that were not included on your federal return must be included as an addition on 
your Illinois Income Tax return when figuring your total Illinois 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.

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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.
Note: 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 tax-
able 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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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 (TTY 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 - electronic only, one copy.
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