Q. Why for Illinois will I get taxed twice?
A. You're not getting taxed twice, at least not on the same income.
Illinois is taxing you on two pieces of income, whereas the feds only taxed one piece (the earnings). Although it appears that IL is taxiing you on your "after tax" basis, that's not really what's happening. IL is taxing you on the recovery of a previous year deductions that are now no longer valid.
I don't have the IL program. But, based on similar situations on other state software, you enter the income at:
Income you received in 2022 from a College Savings and Tuition Program (529 Plan) or ABLE account that was not included in your federal income.
