Is civilian pay from a State of Illinois job that requires Illinois National Guard membership exempt from Illinois income tax?

Plain-English summary

A taxpayer who had worked for the Illinois Department of Military Affairs in a civilian position wrote to the Illinois Department of Revenue asking whether the wages from that job were exempt from Illinois income tax. The job itself was a civilian position, but it required the employee to be an active (or, for retirees, at least 20-year) member of the Illinois National Guard to obtain and keep the job. The taxpayer had already applied for refunds of Illinois income tax withheld for several years but was holding off on cashing them until getting a ruling.

The taxpayer pointed to 35 ILCS 5/203(a)(2)(E), which was amended in 2001 to broaden the income tax subtraction for compensation "paid to a resident in 2001 or thereafter by reason of being a member of the Illinois National Guard." Because the job required National Guard membership, the taxpayer argued the wages might qualify as exempt "by reason of" that membership requirement.

The Department disagreed. It explained that the 2001 amendment (enacted by Senate Bill 52 / Public Act 92-0244) was intended only to clarify that National Guard training pay — the pay guardsmen receive for weekend and annual training, in addition to active-duty pay — is tax-exempt. It was not intended to exempt all pay of any kind received by someone who happens to hold National Guard membership. Civilian salary paid by the State of Illinois for a civilian job is not military pay, even if National Guard membership is a job requirement. The Department also noted that Illinois Department of Revenue Publication 102 states that military pay received as a civilian is not eligible for tax-exempt status.

The Department concluded that income paid by the State of Illinois to a civilian employee, for employment that merely requires Illinois National Guard membership, falls outside the scope of the 35 ILCS 5/203(a)(2)(E) subtraction and remains taxable under Illinois income tax.

What this means for you

If you hold a civilian state job that requires National Guard membership

Your regular salary is ordinary taxable wages for Illinois income tax purposes. The fact that your employer requires you to be (or remain) a member of the Illinois National Guard as a condition of employment does not, by itself, convert your civilian paycheck into exempt military pay.

If you also receive separate National Guard active-duty or training pay

This ruling does not say that pay is taxable — it addresses only the civilian salary question. Compensation actually paid "by reason of being a member of" the Illinois National Guard for active duty or training (as opposed to a civilian job with the state) is the type of pay the 2001 amendment to 35 ILCS 5/203(a)(2)(E) was meant to protect. Keep your civilian pay stubs and any separate military pay records distinct, since they are treated differently.

If you already claimed a refund based on this theory

The Department's position here means a refund claim built on the argument that civilian state wages are exempt simply because the job required National Guard membership would not be supported by this ruling. Because this is a GIL and not a binding ruling on your specific facts, you should still confirm your own situation with the Department or a tax professional, especially if your facts differ (for example, if some of the pay was actually received for military duty rather than civilian employment).

Common questions

Q: Does working for the Illinois Department of Military Affairs make my pay tax-exempt?
A: Not by itself. The Department found that civilian wages paid by the State of Illinois remain taxable even when the civilian job requires National Guard membership.

Q: What kind of National Guard pay actually qualifies for the exemption?
A: Based on the legislative history discussed in the ruling, the 2001 amendment to 35 ILCS 5/203(a)(2)(E) was meant to cover active duty pay and training pay (such as pay for the traditional two days a month and two-week annual training) received by reason of National Guard membership — not civilian salary from a state job that merely requires membership as a condition of employment.

Q: Is this ruling binding on the Department?
A: No. The ruling states explicitly that it is a General Information Letter (GIL), which "does not constitute a statement of policy that applies, interprets, or prescribes the tax laws, and it is not binding on the Department."

Q: The taxpayer asked for a Private Letter Ruling — why did they get a GIL instead?
A: The ruling explains that "the nature of your letter and the information provided require that we respond with a General Information Letter (GIL)" rather than the Private Letter Ruling the taxpayer requested.

Citations and references

• 35 ILCS 5/203(a)(2)(E) — the Illinois Income Tax Act subtraction provision for certain military and Illinois National Guard compensation; the central statute at issue in this ruling.
• Public Act 92-0244 (eff. 8/3/2001) — the 2001 amendment (originally Senate Bill 52) that expanded the subtraction language to reference compensation paid "by reason of being a member of the Illinois National Guard."
• 86 Ill. Adm. Code 1200.120(b) and (c) — the Department regulation explaining that a General Information Letter is general information only, is not a statement of Department policy, and is not binding on the Department.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2016/it-16-0008-gil.pdf

Original ruling text

IT 16-0008-GIL 12/07/2016

SUBTRACTION MODIFICATION

Civilian income paid for a position that requires membership in the Illinois National Guard
does not qualify for tax-exemption status for Illinois income tax purposes. (This is a GIL.)

December 7, 2016
Re:

Tax Exempt Military Pay

Dear Xxxxx:
This is in response to your letter received by this office August 19, 2016. The nature of your
letter and the information provided require that we respond with a General Information Letter
(GIL). A GIL 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 accessed from the Department’s web site at www.tax.illinois.gov.
Your letter states as follows:
I, NAME, worked for the State of Illinois Military Affairs as a TITLE from MONTH 20XX
through MONTH 20XX. This position is a civilian position that required me to me [sic] a
member of the Illinois National Guard to obtain and maintain my employment. I am
requesting a ruling regarding my wages earned during this period and whether or not
these wages are exempt from Illinois Income Tax. To the best of my knowledge the
Department has not previously ruled on the same or a similar issue. I have not previously
submitted the same or similar issue to the Department but withdrew it before a letter ruling
was issued. It is my understanding that income is exempt from Illinois Income Tax if your
income was received from wages earned from employment in which you were required
to be a member of [the] Armed Forces or National Guard to obtain and maintain that
employment. If this is the reason used to determine taxability of the income then I believe
my income earned may be exempt as well. Below are the material facts to my situation:
I held a military exempt position with the State of Illinois Department of Military Affairs
Office from MONTH 20XX through MONTH 20XX. My title was a TITLE. As stated above,
this position is a civilian position that required me to me [sic] a member of the Illinois
National Guard to obtain and maintain my employment. I have enclosed Exhibit A and
Exhibit B as verification. Exhibit A, a Military Affairs employment verification letter, states
my dates of employment and my requirement to be an active member of the Illinois
National Guard. Exhibit B, a TITLE job Classification and position posting, states under
REQUIREMENTS [sic]. “Requires active or retired (minimum of 20 years) membership in
the Illinois National Guard…” I have recently applied for refunds of my Illinois income tax
withheld for tax years 20XX through 20XX, but do not want to cash any refunds approved
until I have a private letter ruling to support my claim. The tax year[s] 20XX and 20XX
was recently processed for a refund.
My review of the statutes and publications by the department don’t lead me to a definitive
answer on the taxability of my wages. I was unable to find any previous General or Private

Letter Rules that were similar to my situation. The Illinois Department of Revenue
Publication 120 [sic], Illinois Filing Requirement for Military Personnel, explains pay you
received from the military as a civilian may not be subtracted as military pay. The wages
I received from my position were paid by the State of Illinois, not the military, and they are
civilian wages. In reviewing the Section 203(2)(E) of the Illinois Income Tax Act for
taxable years ending before December 31, 2001 it describes income must be active duty
income or annual training income. In this situation, I agree my civilian income may not
be a military pay subtraction and is taxable. However, for the taxable years ending on or
after December 31, 2001 the statue became more vague and for Illinois National
Members states “…and in respect of any compensation paid to a resident in 2001 or
thereafter by reason of being a member of the Illinois National Guard…”. Based on this
information and my requirement to be a member of the Illinois Nation [sic] Guard to have
had my employment, then I believe my income qualifies as exempt.
Once again, I request that a Private Letter Ruling determination be made on the wages I
earned for my employment with the State of Illinois Military Affairs Office as a Military
Environmental Specialist. In the event a Private Letter Ruling cannot be made, I request
a General Information Letter regarding the taxability of wages earned if earned by
employment in a civilian position that requires you to be a member or [sic] the Armed
Forces or National Guard.

RULING
35 ILCS 5/203(a)(2)(E), as originally written, only exempted Illinois National Guard active duty
pay from Illinois income tax. Section 203(a)(2)(E) was amended on August 3, 2001 under
Senate Bill 52 to include:
For taxable years ending on or after December 31, 2001, any amount included in such
total in respect of any compensation (including but not limited to any compensation paid
or accrued to a serviceman while a prisoner of war or missing in action) paid to a resident
by reason of being a member of any component of the armed forces of the United States
and in respect of any compensation paid or accrued to a resident who as a government
employee was a prisoner of war or missing in action, and in respect of any compensation
paid to a resident in 2001 or thereafter by reason of being a member of the Illinois National
Guard… Public Act 92-0244 (eff. 8/3/2001).
The legislative intent behind Senate Bill 52 was to clarify that,
…Currently, their [National Guardsmen] pay is exempt from State tax when they are on
active duty status, whether they are called to a conflict around the world or their two-week
annual training. This clears up a conflict and allows their pay, when they are training two
days a month, to also be tax-exempt. State of Illinois 92nd General Assembly Senate
Transcript, 19th day, pg. 86 (Mar. 29, 2001).
The legislative intent for the 35 ILCS 5/203(a)(2)(E) amendment under Senate Bill 52 was to
clarify tax-exempt status for National Guard training pay. The amendment did not extend taxexempt status to civilian pay received while being a member of the Illinois National Guard.

Military pay received as a civilian is not eligible for tax-exempt status. Pub. 102. The statute
and publication are silent to a situation where the State of Illinois pays civilian wages to a
member of the Illinois National Guard, but the disallowance of the exemption flows naturally from
the established principle that civilian income paid by the military is not eligible for tax-exempt
status. Pub. 102. Moreover, the requirement that an employee must hold membership in the
Illinois National Guard is immaterial, because the legislative intent to the section 203(a)(2)(E)
amendment was to clarify the tax-exempt status of National Guard non-active duty, training pay,
and not to exempt all pay received as consequence to a membership in the Illinois National
Guard.
Therefore, income paid from the State of Illinois to a civilian for employment that requires
membership in the Illinois National Guard falls outside the scope of 35 ILCS 5/203(a)(2)(E), and
is not tax-exempt from Illinois income tax.
As stated above, this is a GIL. A GIL does not constitute a statement of policy that applies,
interprets, or prescribes the tax laws, and it is not binding on the Department.

Sincerely,

Brian Fliflet
Deputy General Counsel