Illinois Gambling And Taxes

People enjoy winning when gambling, but most would concur that paying taxes is far from enjoyable.

Unfortunately, if you are an Illinois resident who hits a jackpot while gambling, both the IRS and the state of Illinois will require a share of your winnings.

Gambling winnings are considered personal income by Uncle Sam and the Land of Lincoln, no matter how they are obtained.

This rule applies whether you buy a winning lottery ticket, get lucky on a slot machine, win at the craps table, make a smart sports bet, emerge as the last person standing in a poker tournament, leave a video lottery terminal satisfied, or have a successful day at the racetrack.

While most gambling firms in Illinois automatically withhold a part of your winnings for tax purposes, this doesn’t guarantee that you won’t have to pay extra when filing your tax return.

Tax guidelines exist for all Illinois gamblers to follow, however, specific situations are best handled by tax professionals.

Firstly, it’s important to know when to report your winnings on your tax returns.

Do I need to report my gambling winnings to the IRS?

Yes, failing to declare gambling winnings may result in underpayment, potentially resulting in fines and interest charges.

However, there are general guidelines to determine if you need to report your gambling winnings on your personal tax returns. The thresholds are:

• The minimum amount you win from playing bingo or slots, without deducting the wager, is $1,200.
• The amount you win from a keno game, minus the bet, is no less than $1,500.
• Your poker winnings, minus the wager or buy-in, are no less than $5,000.
• Your winnings from any other types of gambling (excluding bingo, slot machines, keno, and poker tournaments), subtracting the wager, are either $600 or more, or no less than 300 times the amount of your wager.
• Federal income tax withholding applies to your winnings due to any reason, whether it’s regular gambling withholding or backup withholding.

Please note that these thresholds apply to a full tax year. For instance, if you make a profit of $200 three times from sports betting, it would exceed the $600 limit.

Should your winnings exceed any of these levels, it’s required to report them to both the IRS and the Illinois Department of Revenue. The W-2G form is needed for your federal tax return.

Illinois taxes on sports betting winnings

Sports betting, both online and in retail, is the latest gambling method in Illinois. However, for taxation purposes, it is treated like any other form of gambling.

If you accumulate $600 or more from sports betting in Illinois over the course of a year, a tax rate of 15% applies.

Each sportsbook that has made payments to you should provide you with a Form W-2G. Use the data on these forms to report your sports betting earnings to both the IRS and the state.

If you itemize your deductions, you are eligible to deduct the amounts you wagered and lost on your federal taxes. However, the deduction is not applicable for wagers from winning bets.

No matter the source of your gambling earnings, your tax obligations remain constant. After fulfilling your tax duties and reporting them, you are free to use the remainder as you wish.

Do I need to fill out a W-2G form?

Usually, you won’t need to complete the W-2G form. It’s typically the casino, racetrack, off-track betting site, sportsbook or VLT machine operator’s duty.

If the operator has the right information, every entity you’ve gambled with in a tax year will send you a filled-out Form W-2G.

This form provides two pieces of information to both you and the IRS:

• The total amount you won from that source for the whole tax year.
• The entity withheld any amount from your winnings for tax purposes.

Casinos and other gambling companies typically withhold 25% of your winnings if they possess your tax ID, such as your Social Security number. However, without this information, they might withhold up to 28% of your winnings.

Should you have gambled with multiple companies throughout a tax year, you should receive a W-2G form from each. Do not proceed with filing your income tax return until you have obtained all anticipated W-2G forms.

How do I report Illinois gambling winnings to the IRS using W-2G forms?

After receiving all expected W-2G forms, the amounts displayed on these forms should be transferred to your federal income tax return.

To begin, sum up the amounts in Box 1 of all your W-2G forms.

After calculating the total, record it as “Other Income” on Form 1040, Schedule 1. Next, the sum of all income under this category should be entered on Line 7a of your Form 1040.

Attach Schedule 1 to your Form 1040. The amounts that the gambling entity or entities withheld from your winnings for tax purposes during the year are displayed in Box 2 of your W-2G form(s).

Once more, if you have multiple W-2G forms, sum up the amounts. The total should be recorded on Line 17 of your 1040 form. Do not attach any of your W-2G forms to your 1040 form.

Maintain these forms in your records for a minimum of five years. After this period, you have fulfilled your responsibility of reporting your gambling earnings to the IRS.

Whether you’ll need to pay tax on your gambling winnings is determined by the amount you won, the amount held back by the gambling company, and the prevailing federal tax rate.

Now, let’s proceed to your state taxes.

Illinois state taxes for gambling winnings

Illinois treats all gambling winnings as personal income. The amount you owe will depend on the total income you gathered from various sources throughout the year.

At present, Illinois imposes a uniform tax rate of 4.95% on all its residents. In November 2020, attempts to introduce a graduated income tax amendment were unsuccessful as it was rejected by the voters.

As a full-time resident of Illinois, it is required to report gambling winnings using Form IL-1040. Winning cash or a prize from gambling within Illinois necessitates both a Schedule M and a Schedule IL-WIT.

Schedule M informs the Illinois Department of Revenue about your in-state gambling profits for the tax year. This is where your W-2G forms prove to be useful.

Sum all the amounts from Box 1 on your W-2G forms. Record this total on Line 11 of your Schedule M, labeling it as gambling winnings. Then, transfer the total from Line 12 of your Schedule M to Line 3 of your IL-1040.

Attach the Schedule M to your IL-1040. Refrain from attaching your W-2G forms to your state return once more. Use Schedule IL-WIT to report any amounts that an Illinois gambling company withheld from your winnings.

Record every W-2G form individually on the Schedule IL-WIT, each on a different line. Afterwards, take your total from Line 11 and move it to Line 25 on your IL-1040 form. Finally, attach the Schedule IL-WIT to your IL-1040 form.

How do I report out-of-state gambling winnings?

If a gambling company in another state withheld state income tax from your winnings, you could use this as a credit towards your tax liability in Illinois.

For this purpose, utilize Schedule CR. Record your total non-IL gambling winnings on Column B, Line 15. Following that, enter the amount you paid to another state on Line 51.

After finishing all the steps, transfer the amount from Line 55 to Line 15 on your IL-1040. Then, attach Schedule CR to your IL-1040.

The process is simplified with the crucial W-2G forms. Nonetheless, not receiving one does not exempt you from declaring your gambling profits.

What if I didn’t get a Form W-2G?

Should you not receive a W-2G form, it is advised to reach out to the company where you won cash or prize money from gambling.

The operator may have inaccurate address details, or there could have been another oversight that you can assist them in rectifying.

If you do not receive a Form W-2G, it does not exempt you from reporting your gambling winnings. In some, if not all instances, the tax due may have already been withheld. Hence, by not reporting, you are only causing harm to yourself.

Underreporting your income can lead to penalties from the Illinois Department of Revenue and/or the IRS, such as fines, asset confiscation, wage garnishment, and interest charges on your unpaid taxes. Ultimately, complying with the law saves you both time and money.

If you’re unsure about your winnings, you can refer to bank statements and rewards accounts from gambling companies for clarification.

Some victors also share similar inquiries about how to handle non-cash rewards.

What if all or part of my gambling winnings weren’t cash?

Should you win a boat, car, house, or any other prize through gambling, be aware that both the IRS and the Illinois Department of Revenue will tax these winnings. The organization awarding the prize is expected to provide a federal Form 1099, detailing your tax information and the fair market value of your prize.

Put that amount on Line 21 of your Federal Form 1040.

You should report your state taxes for this as you would cash winnings, using the gambling company’s fair market value on the 1099 once more.

This applies equally when winning cash from multistate lottery games such as Mega Millions or Powerball. The Illinois Lottery also offers these games, thus your winnings should be reported in the same manner as those from an Illinois lottery game.

Should you belong to a group that has collectively purchased a sizable amount of lottery tickets with the intention of dividing the prize, there exists a specific protocol for such a scenario. However, this does necessitate some effort on your part.

What if I’m part of a group of people who won a prize gambling?

If you’re part of a group that divides prize winnings, you need to familiarize yourself with federal Form 5754.

On the form, you should include details such as addresses, names, and tax IDs for each group member. After completing it, make a duplicate for each person in the group.

Next, forward the original to the entity awarding the prize. This company will utilize this information to distribute individual Form W-2G to each person.

Once you have that, you can proceed with the usual process of declaring those winnings to the IRS and the IL Department of Revenue. It is important not to attach the 5754 to your federal or state tax returns. Instead, retain it for your records.

Having explored all the scenarios, there is a silver lining. The IRS does provide some flexibility when it comes to gambling.

What can I deduct from my taxes related to gambling?

You have the option to subtract your gambling losses from your federal income tax obligation, but this is only possible if you opt to itemize your deductions. However, in some cases, it may be more advantageous to opt for the standard deduction, even if you frequently gamble.

Only your gambling losses are deductible. Expenses incurred for staying in a hotel, dining at a restaurant, purchasing drinks, etc., during your gambling activities are not deductible.

Moreover, the IRS doesn’t permit you to deduct losses exceeding your reported winnings. It’s also important to point out that the Illinois Department of Revenue doesn’t allow you to deduct gambling losses from your state liability.

Should you choose to itemize your federal deductions, compute all your gambling losses for the year.

Put the total amount on Line 28 of Schedule A, Form 1040. Additionally, maintain meticulous records of the gambling losses you claim as deductions for a minimum of five years.

Joining rewards programs with gambling companies can be beneficial yet again. These programs can offer you a comprehensive record of your losses over a span of a year. Online sportsbooks excel in making this process straightforward.