brendaraatz,
While I am not a professional tax person, I respectfully disagree with your assessment about the taxability. Nor could I find anything on the Illinois income tax website supporting your position. Here is what I see as the proper treatment.
An excess contribution of pre-tax dollars to a non-IRA qualified retirement plan is returned to you along with any earnings on that excess as soon as practicable. Such an excess contribution was ordinary salary that should have been taxed and a W-2 form is corrected to include that untaxed salary once it is returned. Similarly, earnings in the plan from any excess contribution, whether or not pre-tax, were sheltered from taxation while they were in the plan and so should have been taxable income in the first place which is why those excess earnings are taxed when they are distributed.
This reasoning is independent of federal versus state. You should have been reporting excess pre-tax deferral as income and so it is added back as taxable income when returned. You should have been earning taxable income on any excess contribution while it was in the plan and so it is added back as taxable income when it is withdrawn.
