IL IT 10-0025-GIL Illinois Income Tax 2010-10-18

Did Illinois tax a 401(k) withdrawal included in an individual's federal adjusted gross income?

Short answer: No. Illinois began with federal adjusted gross income but Section 203(a)(2)(F) allowed an individual to subtract amounts included under IRC Section 402(a). Because a 401(k) withdrawal was included in federal adjusted gross income under Section 402(a), IDOR said the taxpayer could subtract the withdrawal when computing Illinois net income. The GIL's heading expressly stated that Illinois did not tax early 401(k) withdrawals.

Apply this to your situation

This page answers the general question as of 2010. Ezel answers yours, under current Illinois tax law, with citations.

Disclaimer: This is an official 2010 Illinois Department of Revenue General Information Letter applying then-current retirement-income subtraction rules to a stated 401(k) distribution. A GIL is NOT a statement of Department policy and is NOT binding on the Department. Plan type, federal income inclusion, rollover treatment, contribution basis, penalties, residence, tax year, and current federal and Illinois law can change the result.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Illinois did not tax the 401(k) withdrawal included in the taxpayer's federal adjusted gross income. Illinois started its individual calculation with federal adjusted gross income, but Section 203(a)(2)(F) allowed a subtraction for amounts included under specified federal retirement-plan provisions, including IRC Section 402(a).

Because the 401(k) distribution was included federally under Section 402(a), the taxpayer could subtract that included amount when computing Illinois net income. The GIL applied this treatment even though its heading characterized the payment as an early withdrawal.

What this means for you

Confirm the distribution came from a covered retirement plan and identify the amount actually included in federal adjusted gross income. That included amount is the starting point for the Illinois subtraction applied here.

Common questions

Q: Did an early 401(k) withdrawal lose the Illinois subtraction?
A: No. IDOR's heading stated that Illinois did not tax early withdrawals from 401(k) plans.

Q: Was the gross distribution automatically the subtraction amount?
A: The GIL described subtracting the withdrawal to the extent it was included in federal adjusted gross income under IRC Section 402(a).

Citations and references

35 ILCS 5/203(a)(2)(F), (h)
IRC § 402(a)

Subject

Subtraction Modifications – Retirement Income

Source

Original ruling text

IT 10-0025-GIL 10/18/201 SUBTRACTION MODIFICATIONS – RETIREMENT INCOME
General Information Letter: Illinois does not tax early withdrawals from 401(k) plans.
October 18, 2010
Dear:
Your letter dated August 26, 2010, has been forwarded to me for consideration. The nature of your
request and the information you have provided require that we respond with a General Information
Letter, which is designed to provide general information, is not a statement of Department policy and
is not binding on the Department. See 86 Ill. Adm. Code 1200.120(b) and (c), which may be found on
the Department's web site at www. tax.illinois.gov.
In your letter you have stated the following:
I just received from my 401K:
Total:

$41,163.30

Federal Withholding:

$8,232.66

Please let me know how much and when I will have to pay state tax.
I was born on June 10, 1944
My stats on 2010 tax year are the same as 2009.
Response
Withdrawals from Internal Revenue Code Section 401(k) plans are not subject to Illinois income tax.
Under Section 203 of the Illinois Income Tax Act (35 ILCS 5/203), the computation of an individual’s
"net income" taxed by Illinois begins with the taxpayer's federal adjusted gross income, as properly
computed for the taxable year. Various addition and subtraction modifications are then made, and
the resulting "base income" is then allocated and apportioned to Illinois. Section 203(h) of the Illinois
Income Tax Act provides that no modification may be made to taxable income or adjusted gross
income unless expressly provided in Section 203 of the Illinois Income Tax Act.
Section 203(a)(2)(F) of the Illinois Income Tax Act allows an individual to subtract from his or her
federal adjusted gross income:
An amount equal to all amounts included in such total pursuant to the provisions of
Sections 402(a), 402(c), 403(a), 403(b), 406(a), 407(a), and 408 of the Internal
Revenue Code.
Withdrawals from Internal Revenue Code Section 401(k) plans are included in federal adjusted gross
income to the extent provided in Internal Revenue Code Section 402(a). Accordingly, in computing
your net income subject to Illinois tax, you are allowed to subtract any withdrawal from an Internal
Revenue Code Section 401(k) plan that is included in your federal adjusted gross income.
As stated above, this is a general information letter which does not constitute a statement of policy

IT 10-0025-GIL
October 18, 2010
Page 2
that applies, interprets or prescribes the tax laws, and it is not binding on the Department. If you are
not under audit and you wish to obtain a binding Private Letter Ruling regarding your factual situation,
please submit all of the information set out in items 1 through 8 of Section 1200.110(b). If you have
any further questions, you may contact me at (217) 782-7055.
Sincerely,

Paul S. Caselton
Deputy General Counsel – Income Tax

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