On Jan. 10, 1996, Congress enacted the Pension Source Tax Act of 1996 (P.L. 104-94). This law specifically stipulates that, “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State.” While the Source Tax law still allows individual states to define residency on their own terms, it prohibits any state from taxing non-residents for pensions earned within the state.
True but remember it is only a 'law', so any subsequent Congress has the right to change it. Believe me, those over-extended Pension Funds are gasping for a rewrite of this 'error'. As a tax preparer in Florida, I have made many recommendations for clients to move their 'tax home' to Florida (no personal income tax). Illinois is probably the US State that would like a change the most!