Winning while gambling is fun; however, most people agree that paying taxes is the opposite.
If you’re an Illinois resident who wins a jackpot while gambling, unfortunately, the IRS and the state of Illinois will demand its cut of your profit.
Uncle Sam and the Land of Lincoln consider gambling winnings personal income, regardless of how you acquired them.
So, whether you buy a winning lottery ticket, have a lucky pull on a slot machine, win at the craps table, make a clever sports bet, are the last person standing in a poker tournament, leave a video lottery terminal happy or have a good day at the racetrack, this rule applies.
Most Illinois gambling companies will automatically withhold a portion of your winnings for tax purposes. However, that doesn’t necessarily mean you won’t owe additional money when you file your tax return.
While tax professionals best handle specific situations, there are tax guidelines for all Illinois gamblers to follow.
Firstly, you should know when you should report your winnings on your returns.
Do I need to report my gambling winnings to the IRS?
Yes. A failure to report gambling winnings could put you at risk of underpayment, which could lead to fines and interest payments.
There are some general guidelines for gauging whether you need to report your gambling winnings on your personal tax returns, however. Those thresholds are:
- Your winnings from playing bingo or slots (not reduced by the wager) are at least $1,200.
- Your winnings from a keno game (reduced by the wager) are at least $1,500.
- The amount of your winnings from playing poker (reduced by the wager or buy-in) are at least $5,000.
- The amount of your winnings from any other gambling types (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are either $600 or more or at least 300 times the amount of your wager.
- Your winnings are subject to federal income tax withholding for any other reason (either regular gambling withholding or backup withholding).
Pay attention that these thresholds are for an entire tax year. For example, if you get a $200 profit on three separate occasions from betting on sports, that would cross the $600 level.
If you accrue winnings over any of these levels, you need to report them to the IRS and the Illinois Department of Revenue. For your federal tax return, the form you need is the W-2G.
Illinois taxes on sports betting winnings
Online and retail sports betting is the newest form of gambling in Illinois. For tax purposes, however, it’s the same as any other form.
There is a 15% tax rate if you earn $600 or more betting on sports in Illinois. This amount is cumulative over the course of the year.
You should receive a Form W-2G from each sportsbook that paid out to you. Again, use the information on those forms to report your sports gambling winnings to the IRS and the state.
You can deduct the amounts you wagered and lost on your federal taxes if you itemize your deductions. You can’t deduct wagers from winning bets, however.
Regardless of where your gambling winnings came from, your tax responsibilities are the same. Once you’ve paid and reported, the rest is yours to enjoy as you please.
Do I need to fill out a W-2G form?
In most cases, you shouldn’t have to fill out the W-2G form. That’s the responsibility of the casino, racetrack, off-track betting site, sportsbook or VLT machine operator.
Provided the operator has the correct information, each entity you gambled with during a tax year will send you a completed Form W-2G.
This form tells the IRS and you two things:
- Your total winnings from that source for the entire tax year.
- Any amount the entity withheld from your winnings for tax purposes.
If they have your tax ID (like your Social Security number), it’s standard for casinos and other gambling companies to automatically withhold 25% of your winnings. Without that information, they may withhold as much as 28%.
If you’ve gambled with more than one company over the course of a tax year, you should get a W-2G form from each one. Don’t file your income tax return until you’ve received all the W-2G forms you expect.
How do I report Illinois gambling winnings to the IRS using W-2G forms?
Once you’ve received all the W-2G forms you expect, you need to transfer the amounts shown on those forms to your federal income tax return.
The first step to doing so is adding up the amounts in Box 1 of all the W-2G forms you have.
Attach Schedule 1 to your Form 1040. Box 2 on your W-2G form(s) show(s) the amounts that the entity or entities you gambled with withheld from your winnings for tax purposes during the year.
Again, add those amounts up if you have more than one W-2G. That total then goes on Line 17 of your 1040. Do not attach any of your W-2G forms to your 1040.
Keep these forms in your records for at least five years. At that point, you’ve completed your obligation to report your gambling winnings to the IRS.
Whether or not you will have to pay tax on your winnings depends on how much you won, how much the gambling company withheld, and what is the federal tax rate.
Now, it’s on to your state taxes.
Illinois state taxes for gambling winnings
The state of Illinois considers all gambling winnings to be personal income. Again, how much you will owe depends on how much income you collected from all sources during the year.
Currently, Illinois has a flat tax rate of 4.95% for all residents. Illinois attempted to pass a graduated income tax amendment, but voters denied it in November 2020.
If you’re a full-time Illinois resident, you should report your gambling winnings on Form IL-1040. If you won cash or a prize gambling within Illinois, you would need a Schedule M and a Schedule IL-WIT.
Schedule M lets the Illinois Department of Revenue know how much you made in profit from in-state gambling over the course of the tax year. Again, this is where your W-2G forms come in handy.
Add up all the amounts from Box 1 on all your W-2G forms. Then, put that amount on Line 11 of your Schedule M and denote it as gambling winnings. The total from Line 12 of your Schedule M goes on Line 3 of your IL-1040.
Attach the Schedule M to your IL-1040. Again, do not attach your W-2G forms to your state return. Schedule IL-WIT is how you report any amounts withheld from your winnings by a gambling company in Illinois.
Report each W-2G form on a separate line on the Schedule IL-WIT. Then, transfer your total from Line 11 to Line 25 of your IL-1040. Attach the Schedule IL-WIT to your IL-1040.
How do I report out-of-state gambling winnings?
If you won cash or a prize gambling in another state and that gambling company withheld state income tax there, you could claim that as a credit against your Illinois tax liability.
Use a Schedule CR for that purpose. Put your total non-IL gambling winnings in Column B, Line 15. Then, put the amount paid to another state on Line 51.
Once you’ve completed all the steps, put your amount from Line 55 on your IL-1040 on Line 15. Attach Schedule CR to your IL-1040.
All these steps are made easier with the all-important W-2G forms. However, if you don’t receive one, that doesn’t mean you’re off the hook for reporting your gambling winnings.
What if I didn’t get a Form W-2G?
If you didn’t receive a W-2G form, you should contact the company where you won cash or a prize money while gambling.
The operator might have incorrect address information or there may have been some other oversight made that you can help them correct.
If that doesn’t get a Form W-2G in your hands, that doesn’t mean you’re off the hook for reporting your gambling winnings, however. At least some, if not all cases, the tax you would owe has already been withheld, so you’re only hurting yourself by not reporting.
If you underreport your income, the Illinois Department of Revenue and/or the IRS can levy fines against you, seize your assets, garnish your pay and charge interest against your back taxes. In the long run, you save money and time by following the law.
If you’re uncertain of how much you won, bank statements and gambling companies’ rewards accounts can be helpful.
Some winners also have similar questions about what to do regarding non-cash prizes.
What if all or part of my gambling winnings weren’t cash?
If you won a boat, car, house, etc., gambling, the IRS and the IL Dept. of Revenue do levy taxes upon those prizes. The entity granting the prize should submit a federal Form 1099 with your tax information stating the fair market value.
That amount goes on Line 21 of your federal Form 1040.
For your state taxes, you would report it the same as you would cash winnings, again, using the gambling company’s fair market value on the 1099.
The same goes for if you win cash playing a multistate lottery games like Mega Millions or Powerball. The Illinois Lottery participates in those games, so you would report it in the same way you would report winnings from an IL lottery game.
If you’re part of a group of people who pooled your money to buy a lot of lottery tickets and split a prize, there’s a special procedure for that situation. It does require a little bit of work on your end.
What if I’m part of a group of people who won a prize gambling?
If you are among a group of people who split prize winnings, meet federal Form 5754.
On that form, you’ll put information like addresses, names, and tax IDs about everyone in the group. Once you’ve filled it out, make a copy for everyone in the group.
Then, submit the original to the entity granting the prize. That company will use that information to send everyone an individual Form W-2G.
Once you’ve got that, you can go through the standard procedure of reporting those winnings to the IRS and the IL Department of Revenue. Do not attach the 5754 to your federal or state tax returns. Keep it for your records.
Now that we’ve gone through all the scenarios, there is a bit of good news. The IRS does afford you some wiggle room on gambling.
What can I deduct from my taxes related to gambling?
You can deduct your gambling losses from your federal income tax liability, but only if you choose to itemize your deductions. It would still be beneficial to take the standard deduction even if you gambled regularly in some cases.
You can only deduct what you lost while gambling. If you stay in a hotel, eat at a restaurant, get something to drink, etc., while you’re gambling, those expenses are not deductible.
Additionally, the IRS does not allow you to deduct more in losses than the winnings you report. Also, note that the Illinois Department of Revenue does not allow you to deduct gambling losses from your state liability.
If you do elect to itemize your federal deductions, calculate all your gambling losses from the year.
Place that total on Line 28 of Schedule A, Form 1040. Also, keep detailed records of the gambling losses you deduct for a period of at least five years.
Once again, this is where joining gambling companies’ rewards programs can be helpful. The programs can provide you with a detailed list of your losses over the course of a year’s time. Online sportsbooks are great at making this easy.