Gambling has become more and more popular across the United States, and Illinois is no exception. From legalized horse racing betting in the 1920s to the implementation of a state lottery in the 1970s to the advent of riverboat casinos in the 1990s, the Land of Lincoln has kept growing its wagering options. Those include sports betting, which was legalized in 2019, allowing Illinois sports betting to make its debut the following year.
One thing that hasn’t changed is the responsibility of winning bettors to report their good fortune on their tax returns. This is important to emphasize, especially with so many new bettors to Illinois. Gambling winnings are considered income and must be reported on state and federal tax returns. It doesn’t matter if it is a winning sports bet, lottery winnings or slots at Illinois casinos. Failure to do so can result in penalties, so it’s crucial to keep accurate records of your gambling activity and consult a tax professional if you have any questions.
Illinois is one of nine states with a flat tax on all income – in this case, 4.95%. That’s the percentage you’d owe in state income tax for all gambling winnings, which are considered part of personal income. These winnings must also be reported as income on your federal tax return, where your rate depends on your income level and whether you’re filing as an individual or jointly with a spouse. Federal tax rates range from 10% to 37%, and gambling winnings can bump a person into a higher tax bracket. You should consult a tax professional to avoid any mistakes in calculating your state and federal income tax.
Yes, gambling winnings fall under personal income taxed at the flat Illinois rate of 4.95. As of Dec. 31, 2019, taxes on gambling income in Illinois are owed regardless of what state you live in. Whether they’re winnings from a slot machine, horse track, poker table or sportsbook, they all count as income and are subject to state taxes. They’re also subject to federal taxes. If you win big enough, your winnings will be automatically reported to the IRS, and a flat rate of 24% may be automatically withheld (your federal income tax rate might differ come filing time). If the winnings include non-monetary prizes like a boat or trip, fair market value is used to determine the taxes owed.
Illinois makes it simple thanks to the state’s 4.95% flat tax rate. Although the Illinois General Assembly has debated measures to graduate tax rates based on income, that idea has not been passed into law. The federal tax rate on Illinois gambling winnings will vary depending on your overall income, though a set percentage will likely be withheld should your winnings reach a specified threshold, which triggers a W-2 G to be sent to the IRS. Even if a W-2 G isn’t issued, you are still considered responsible for reporting winnings.
If your winnings hit a certain threshold, gaming operators must provide you with a Form W-2 G on which to report winnings to state and federal governments. Those thresholds vary by and include: $600 or more if the amount is at least 300 times the wager; $1,200 or more from bingo or slot machines; $1,500 or more (reduced by the wager) at keno; $5,000 or more (reduced by the buy-in) from poker tournaments; or any other winnings subject to federal withholding.
The operator will withhold taxable amounts if you win more than $5,000 from a wagering pool, lottery or sweepstakes, or collect any winnings at least 300 times the size of the bet. The Form W-2 G should show the amount won, and if applicable, the amount withheld. If another person is entitled to some of the winnings – say, you and a friend went in together on a big Illinois NFL bet – you’ll each need to file a Form IL-5754 with the gaming facility, which will then issue a W-2 G for each person.
Form IL-5754 will also stipulate whether those collecting the winnings are Illinois residents. Nonresidents must file a Form IL-1040 Schedule NR that will determine the appropriate taxes owed to the state.
Operators don’t have to provide you with a Form W-2 G or withhold taxable amounts if your winnings don’t meet a certain threshold. Regardless, all gambling winnings are considered taxable income and must be reported to the government even if you didn’t receive a form from a casino or Illinois betting site.
But if you don’t have a form supplied by a gaming operator, how will the government know your winnings and/or losses are legit? The only way to ensure that is by keeping meticulous records: wins, losses, dates and gaming facilities. One benefit of online betting is that gaming operators typically keep an electronic record of your betting history that you can access for tax purposes directly from your account. You’ll then report your winnings as “other income” on your state and federal tax returns. For example, if you win a bet at DraftKings Illinois Sportsbook, and you don't remember the exact amount, you can ask their customer support to help you. The same goes for winnings from BetMGM Illinois Sportsbook or any of the best Illinois sportsbooks.
Yes, but only if you itemize deductions. That means foregoing the standard deduction that most people take. Itemizing deductions can be complicated and consulting a tax professional is always a good idea if you have any questions. This also applies only to casual gamblers, as opposed to professionals who are considered self-employed and pay an estimated tax each quarter.
Additionally, the number of losses you deduct can't be more than the amount of gambling income you report, according to the IRS. Gambling losses claimed up to the number of winnings are classified as "other itemized deductions" on your Schedule A Form 1040. And remember to have all your documentation – the more information, the better!
Congratulations, you won the Illinois Lottery! Now don’t forget to pay your taxes. Just like other gambling winnings, lottery prizes are taxable income. Lottery income is taxed like other gambling income, with initial withholding from winnings at a state rate of 4.95% and a federal rate of 24%. A Form W-2 G is typically attached to the check you receive from the lottery claim center.
The state lottery commission is required by law to withhold state taxes on prizes of $1,000 or more, and federal taxes on prizes of $5,000 or more. Winners who are paid in annual installments will automatically have taxes withheld from each payment.
If a lottery prize is won by a group of people, the tax liability is shared by all those involved unless the amount of the prize is $600 or less. Each member of the winning group fills out a Form 5754 that records their share won and their tax liability, which may be withheld automatically depending on the amount. The Illinois Lottery will then issue a Form W-2 G to each group member who receives a portion of the prize up to $25,000. For groups claiming prizes greater than $25,000, payments and W-2 G forms will be issued by the Illinois Comptroller’s Office.
Taxes on multistate lotteries such as Powerball and Mega Millions are more complicated. First, only Arizona and Maryland tax the winnings of multistate lottery winners who live outside those states; Illinois does not. The Land of Lincoln’s 4.95% flat tax rate on personal income once again comes into play, although you must report earnings each year you receive them in the case of a multi-year award.
The IRS takes 24% of winnings for any award of $5,000 or more, but you could also owe more taxes to the federal government if the amount of the award bumps you into a higher tax bracket. That means you could ultimately be taxed on your winnings by as much as 37%.
If flagged by the IRS, you’re probably looking at a financial penalty, likely a percentage of the tax you haven’t paid on top of the taxes owed. If you won enough to receive a Form W-2 G from a gaming facility, the IRS already has a record of your activity and knows you owe taxes on your winnings unless they were withheld automatically.
For smaller amounts that don’t merit automatic withholding or the generation of a W-2 G, the decision to report winnings as taxable income is a personal one. Even so, remember that both the IRS and the state of Illinois assert that taxpayers are legally required to report all gambling income.
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