Refunds are explained on leaving teaching, and the buyout payments on buyouts. To see the monthly amount you'd be taxed on, use the calculator.
Refunds and rollovers
Refunds are not subject to Illinois individual income tax; the pre-tax portion is subject to federal income tax (20% withheld unless rolled over). Tier 1 Guide pp. 35-36, Refunds eligible for rollovers; Taxability of refunds
Very large pensions
Amounts above the IRS Section 415 limit are paid from the Excess Benefit Fund on a W-2; that benefit is not subject to Illinois state income tax. Tier 1 Guide p. 22, IRS Section 415 benefit limitations
What the guides say
- TRS Illinois pensions and other TRS Illinois payments are not subject to Illinois individual income tax.Tier 1 Guide p. 39, Taxability of TRS Benefits; Tier 2 Guide p. 38
- TRS Illinois payments are subject to federal income tax, except occupational disability benefits.Tier 1 Guide p. 39
- A refund paid to you has 20% federal tax withheld; a direct rollover to an IRA or other plan avoids the withholding.Tier 1 Guide p. 35, Refunds eligible for rollovers
- TRS Illinois is a qualified pension plan under Internal Revenue Code Section 401(a). Your contributions are sheltered from income tax when they're made, income tax on them is put off until you retire, and the interest credited to you builds up tax-free.Tier 1 Guide p. 2, Qualified pension plan status
- To start your retirement, TRS Illinois asks for your federal withholding status and number of exemptions, along with your retirement date.Tier 1 Guide p. 21
- If your pension is over the federal payment limit, the part above it is paid from the separate Excess Benefit Fund, so you get two payments a month. Federal withholding is figured on the total (the guide's example: $7,000 plus $1,000 is withheld as $8,000 a month) and comes out of the main payment. You get a 1099-R and a W-2 each year.Tier 1 Guide p. 22
- In your first January of retirement, TRS Illinois sends a letter explaining your Excess Benefit Fund payment. The W-2 amount isn't subject to Illinois income tax; keep the letter in case the Illinois Department of Revenue asks for it.Tier 1 Guide p. 22
Questions
Does Illinois tax my TRS Illinois pension?
No. TRS Illinois disbursements are not subject to Illinois individual income taxes.
Is my pension taxed by the federal government?
Yes. TRS Illinois benefits are subject to federal taxes, except occupational disability benefits.
Is a refund taxed?
Not by Illinois. The pre-tax part is subject to federal income tax, with 20% withheld unless you roll it over.
The guides say only this about taxes. This is general information from the TRS Illinois guides, not tax advice.
Source: TRS Tier 1 and Tier 2 Member Guides, September 2026, Tier 1 Guide pp. 2, 21, 22, 35, 36, 39; Tier 2 Guide p. 38. Last reviewed .