Sports Betting Taxes in Illinois: What Bettors and Operators Need to Know
Overview of Illinois Sports Betting Tax Structure
Illinois legalized sports betting in 2019 through the Sports Wagering Act, which allows both in-person and online sports wagering. As of 2024, the tax structure for sports betting in Illinois includes a significant revision that took effect with the passing of the 2023 state budget. This change has had a direct impact on operators and, indirectly, on bettors as well.
Tax Rates for Sports Betting Operators
Prior to July 1, 2024, Illinois imposed a flat tax rate of 15% on the adjusted gross revenue (AGR) of sports betting operators. However, starting July 1, 2024, the state adopted a graduated tax rate model based on the operator’s annual revenue. The new tax tiers are:
- 15% on AGR up to $30 million
- 20% on AGR between $30 million and $50 million
- 25% on AGR between $50 million and $100 million
- 30% on AGR between $100 million and $200 million
- 35% on AGR exceeding $200 million
This tiered system aims to ensure that larger sportsbooks contribute a higher share of their profits to the state’s coffers, while smaller operators maintain a relatively manageable tax burden.
Tax Withholding on Winnings for Bettors
Illinois residents who win large sums through sports betting must also be aware of their personal tax obligations. While Illinois does not automatically withhold state tax on gambling winnings, federal law mandates a 24% withholding on winnings over $5,000 if certain conditions apply, such as the win being at least 300 times the wager. Bettors must report their winnings on their federal and Illinois state tax returns.
Winnings from sports betting are considered taxable income in Illinois and are subject to a 4.95% flat state income tax. Bettors must maintain accurate records of their wagers, winnings, and losses, as the IRS allows gambling losses to be deducted up to the amount of reported winnings if itemized.
Impact on Operators and the Market
The shift to a progressive tax structure is expected to impact the competitive landscape of sports betting in Illinois. Large national operators like FanDuel and DraftKings face significantly higher tax bills under the new structure. These companies may pass some of these costs on to consumers through reduced promotional offers, less favorable odds, or higher fees.
Meanwhile, the increased revenue for the state from higher tax rates is expected to support public services, including education and infrastructure projects. In fiscal year 2023, Illinois generated over $140 million in tax revenue from sports betting, and projections suggest this figure will grow under the new tax regime.
Local Tax Considerations
While Illinois imposes a state-level tax on sports wagering, municipalities are not permitted to levy additional local sports betting taxes. However, cities can generate revenue through licensing and operational fees for land-based sportsbooks operating within their jurisdictions.
Responsible Gambling and Compliance
Operators are also required to contribute to responsible gambling programs as part of their licensing conditions. This includes funding for problem gambling services and compliance with the Illinois Gaming Board’s (IGB) rules and audits.
Summary
Illinois has adopted a progressive and increasingly complex tax structure for sports betting that affects both operators and individual bettors. The graduated tax model enhances state revenue, while individuals must remain aware of their obligations under both state and federal law. With Illinois standing as one of the top sports betting markets in the United States, understanding these tax implications is essential for anyone engaged in the industry.
