Where to Find Illinois AGI and Key Filing Tips for Part-Year Residents

Filing taxes in Illinois as a part-year resident can be confusing, especially when determining your Adjusted Gross Income (AGI). Since AGI is the starting point for calculating state taxes, knowing where to find it and how it’s adjusted for Illinois-specific rules is essential.

Differences Between Federal and State AGI

Illinois starts with federal AGI but modifies it based on state tax laws. These adjustments can increase or decrease taxable income.

One key difference is how Illinois treats retirement income. While the federal government taxes most retirement distributions, Illinois exempts qualified retirement income, including 401(k) withdrawals, IRA distributions, and pensions. Taxpayers must subtract these amounts from their federal AGI when calculating Illinois AGI.

Another adjustment involves state and local tax (SALT) deductions. The federal government caps SALT deductions at $10,000 for itemizers, but Illinois does not allow a deduction for state income tax paid. As a result, taxpayers who benefit from the federal SALT deduction won’t see the same advantage on their Illinois return.

Which Parts of Income Are Included

Illinois uses federal AGI as the starting point, meaning most income types reported on a federal return are also considered for Illinois tax purposes. This includes wages, salaries, tips, self-employment earnings, rental income, capital gains, dividends, and taxable interest. Business owners, freelancers, and gig workers must report all earnings, even if they didn’t receive a W-2 or 1099.

Investment income is also included. Interest from savings accounts, certificates of deposit (CDs), and corporate bonds is taxable, while interest from U.S. Treasury securities is exempt. Capital gains from selling stocks, real estate, or other assets are included, whether short-term or long-term. While federal tax rates on long-term gains vary, Illinois taxes all capital gains at a flat 4.95%.

Income from pass-through entities such as partnerships, S corporations, and LLCs taxed as partnerships is included in Illinois AGI. Partners and shareholders must report their share of business income, even if it was reinvested. Rental and royalty income from real estate or intellectual property is also taxable, with deductions allowed for expenses like mortgage interest, property taxes, and maintenance costs.

Adjustments for Part-Year Residents

Part-year residents only pay Illinois tax on income earned while living in the state. To determine this, taxpayers start with their total federal AGI and allocate the portion attributable to Illinois.

Income allocation depends on where it was earned and the type of income received. Wages from an Illinois employer while living in the state are fully taxable, but earnings from a job in another state after moving are excluded. For remote workers, taxation depends on residency and employer location. If you worked for an Illinois-based company while residing elsewhere, those wages typically aren’t taxed by Illinois unless the employer withheld state taxes.

For investment income, capital gains, dividends, and interest are generally taxed based on residency at the time they were received. If you sold stock while living in Illinois, the gain is taxable to the state, but if the sale occurred after moving away, it’s excluded. Rental income from Illinois properties remains taxable regardless of residency, while rental income from properties in other states is not reported to Illinois after leaving.

Common Illinois-Specific Additions

Certain types of income and deductions require adjustments when calculating Illinois AGI. One common addition involves distributions from 529 college savings plans that were deducted in a prior year but later used for non-qualified expenses. Illinois allows a deduction for contributions to its Bright Start and Bright Directions plans, but if funds are withdrawn for non-education expenses, they must be added back to income.

Another adjustment applies to taxpayers who claimed the federal deduction for student loan interest. Illinois does not allow this deduction, so the amount deducted federally must be added back to state income. Similarly, interest from municipal bonds issued by other states is taxable in Illinois, even though interest from Illinois-based municipal bonds remains exempt.

Business owners and self-employed individuals may need to add back certain federal deductions that Illinois does not recognize. For example, Illinois does not conform to the federal Qualified Business Income (QBI) deduction under IRC Section 199A, requiring taxpayers to add back any QBI deduction claimed on their federal return.

Where to Find It on Tax Forms

Federal AGI is found on Line 11 of Form 1040 and carries over to the Illinois return but requires modifications based on state rules.

On Form IL-1040, Illinois AGI is reported on Line 1. Any required additions, such as non-Illinois municipal bond interest or disallowed federal deductions, are entered on Schedule M and included in Line 3 of IL-1040. Subtractions, including exempt retirement income or out-of-state earnings for part-year residents, are recorded on Line 7. After these adjustments, the final Illinois AGI appears on Line 9.

Part-year residents must also file Schedule NR to allocate income between Illinois and other states, ensuring only the portion earned while residing in Illinois is taxed.