When it comes to state income taxes, each U.S. state follows its own path—some conform closely to the federal tax code, while others break away to simplify their own systems. Two states that stand out for their stark departure from federal rules regarding deductions are Illinois and Pennsylvania. Specifically, both states do not allow itemized deductions, including those for medical expenses, on their personal income tax returns. In this blog, we examine why these two states take this position, how it affects taxpayers, and what residents can do to still benefit from their medical spending at the federal level.
🛑 No Itemized Deductions Allowed in Illinois or Pennsylvania
Unlike the IRS, which allows taxpayers to itemize deductions for unreimbursed medical expenses exceeding 7.5% of Adjusted Gross Income (AGI), Illinois and Pennsylvania simply don’t offer itemized deductions on their state tax returns. This means that no matter how high your medical expenses are, you will not be able to deduct them when filing your IL-1040 or PA-40 state income tax forms.
This is a significant departure from federal rules and can result in higher state taxable income, especially for individuals with large medical bills.
📜 Understanding the Tax Philosophy of Illinois and Pennsylvania
🔹 Illinois
Illinois uses a flat income tax rate structure. As of 2025, the rate is 4.95%. In an effort to streamline the tax system, Illinois does not conform to most federal itemized deductions. Instead, it bases its taxable income on the federal AGI and allows only a narrow list of state-specific subtractions.
There is no mechanism to deduct medical expenses, mortgage interest, or charitable contributions on the IL-1040. The intent behind this model is simplicity and administrative ease, especially given the flat tax structure.
🔹 Pennsylvania
Pennsylvania takes an even more distinctive approach. It does not use AGI or itemized deductions at all. Instead, PA taxes income based on a “gross income” model divided into separate classes (e.g., compensation, interest, dividends, rents). Each class has its own set of allowable deductions, but itemized deductions such as medical expenses are categorically excluded.
Pennsylvania’s personal income tax rate is a flat 3.07% as of 2025. The focus is on income rather than expenses, and personal deductions—regardless of how significant—are generally not permitted unless they are directly tied to producing taxable income (e.g., business expenses).
💡 Common Misconceptions Among Taxpayers
Many taxpayers mistakenly believe that because the IRS allows a deduction for medical expenses, they can also take that deduction on their state return. This assumption often leads to over-preparation, unnecessary documentation, or even incorrect state filings.
In both Illinois and Pennsylvania, there is no Schedule A equivalent for state tax filing. So while keeping records of your medical costs is essential for federal purposes, those documents have no impact on your state income tax liability.
⚖️ Impact on Tax Planning for Residents
Residents of Illinois and Pennsylvania need to be aware that state-level tax planning is significantly limited. Since medical deductions—and many other itemized deductions—aren’t permitted, the key planning area remains the federal return.
This means:
- Focus your tax-reduction strategies on federal deductions
- Use tools like Health Savings Accounts (HSAs) to gain tax-advantaged benefits
- Track unreimbursed medical expenses for federal Schedule A but ignore them for state filings
📈 Federal vs. Illinois & Pennsylvania: A Comparison Table
| Feature | Federal (IRS) | Illinois | Pennsylvania |
|---|---|---|---|
| Medical Expense Deduction | Yes, above 7.5% of AGI | No | No |
| Itemized Deductions Allowed | Yes | No | No |
| Tax Rate | Progressive | Flat 4.95% | Flat 3.07% |
| Health Insurance Premiums Deductible? | Sometimes | No | No |
| HSA Deductions Conform? | Yes | Yes | No |
✅ What You Should Still Track
Despite the lack of state-level benefits, residents should still keep meticulous records of medical spending for the following reasons:
- Federal Tax Benefits: Especially for taxpayers with high medical costs who itemize deductions
- Health Savings Accounts (HSAs): You may reimburse yourself later for medical expenses tax-free
- Medical Reimbursement Plans: For those with employer-sponsored plans requiring receipts
- Appeals or Disputes: With insurance providers regarding coverage or billing
🔚 Conclusion
Illinois and Pennsylvania both reject itemized deductions for medical expenses, standing in contrast to the federal tax code. Their approach to taxation—flat rates, simplified returns, and minimal deductions—is designed to streamline administration but comes at a cost for taxpayers with high healthcare expenses.
As a resident of either state, it’s crucial to understand this limitation and shift your focus to where you can still benefit—your federal return. Leveraging strategies like medical expense bunching, HSAs, and detailed record-keeping can help you secure tax savings on the federal level, even if your state return won’t reflect those expenses at all.
