The Illinois sports betting tax structure is now the most complex and contested in the country. Since launching in 2020 with a flat 15% operator tax, Illinois has added a progressive revenue tax, a per-wager fee, a Chicago city tax, and a federal change to loss deductions, all within two years. If you are betting in Illinois or operating in the market, the 2026 tax picture looks materially different from what existed in 2024. 

Understanding the structure requires separating what operators pay from what bettors owe. The two sides of the tax equation are distinct and both have changed significantly. [Smart Bet Insider breaks down the legal betting landscape state by state. Check the site for platform guides and current odds.]

How Illinois Taxes Sports Betting Operators

Illinois replaced its flat 15% operator tax with a progressive tiered structure in 2024. The tiers are based on annual adjusted gross receipts from online and retail sports betting.

The rates are: 20% on the first $30 million in revenue, 25% on revenue between $30 million and $50 million, 30% on revenue between $50 million and $100 million, 35% on revenue between $100 million and $200 million, and 40% on all revenue above $200 million. Illinois is the first state to apply a progressive income-based model to sports betting, and its structure is being watched closely by other states reviewing their own tax rates.

In fiscal year 2025, FanDuel earned $491 million in Illinois revenue and DraftKings earned $418 million. Combined, both operators paid over $200 million in state taxes. Both are taxed at the 40% top rate based on their revenue levels.

The Per-Wager Fee

Illinois added a per-wager fee on top of the revenue tax effective July 1, 2025. Operators are charged $0.25 per wager for the first 20 million bets placed in a fiscal year, and $0.50 per wager beyond that threshold. The fee is assessed per operator, not across the market as a whole.

The per-wager fee generated $60 million in the first six months of fiscal year 2026, above the state’s projected $40 million. However, the Illinois Gaming Board reported a 15% decline in total wagers placed between September 2024 and September 2025, making Illinois the only legal market in the country where betting volume dropped following a tax change.

FanDuel and DraftKings responded by passing the fee to customers as a flat $0.50 surcharge per bet. Other operators raised minimum bet thresholds instead: BetMGM set a $2.50 minimum, Hard Rock Bet set $2, BetRivers raised its minimum from $1 to $5, and theScore set a $1 minimum. House Bill 5143, introduced in February 2026 by Rep. Daniel Didech, seeks to repeal the per-wager fee effective July 1, 2026. The bill remains active in the legislature.

The Chicago City Tax

Chicago added a 10.25% tax on sports betting adjusted gross receipts effective January 1, 2026, as part of Mayor Brandon Johnson’s $16.6 billion city budget. The tax applies to all licensed operators taking bets within city limits.

Operators already paying up to 40% in state taxes and per-wager fees can face an effective combined rate above 50% on revenue generated in Chicago. The Sports Betting Alliance, representing FanDuel, DraftKings, BetMGM, bet365, and Fanatics, filed suit in Cook County challenging the city’s authority to impose local taxes under the Illinois Sports Wagering Act. 

All five operators were subsequently licensed and betting continued without interruption. Illinois state lawmakers have filed separate legislation to block Chicago from layering its own tax on top of the state structure.

What Bettors Owe: Federal and State Rules

Sports betting winnings are taxable income at both the federal and state level in Illinois. The IRS treats gambling winnings as ordinary income, taxed at the same rate as wages or investment gains. There is no minimum threshold below which winnings are tax-free.

A Form W-2G is issued when net winnings are at least $2,000 and the payout is at least 300 times the wager. This threshold was raised from $600 effective January 1, 2026, under the One Big Beautiful Bill Act. The threshold applies to whether the sportsbook files a form, not to whether winnings are taxable. All winnings must be reported regardless of whether a W-2G is issued.

Federal withholding of 24% applies to winnings above $5,000. If your actual tax liability based on total income is higher than the amount withheld, you owe the difference at filing. If it is lower, you receive a refund.

At the state level, Illinois residents report all gambling winnings as income on their IL-1040 under “Other Income.” The state income tax rate is 4.95% flat. Non-residents who place bets on Illinois-licensed platforms also owe Illinois state tax on winnings at 4.95%, with some states offering a credit for taxes paid to another state.

The Loss Deduction Change

The One Big Beautiful Bill Act, passed in 2025 and effective January 1, 2026, caps federal gambling loss deductions at 90% of total losses. Previously, bettors who itemized could deduct the full amount of losses up to the amount of their winnings. The change means a bettor who won $2,000 and lost $1,500 is now taxed on $650 rather than $500, since only $1,350 of the $1,500 is deductible. 

The cap applies to itemizers only and has no effect on bettors who take the standard deduction. Illinois does not allow a deduction for gambling losses on the state return. All winnings are taxable at the state level and no offset for losses is available regardless of federal treatment.

How Operators Are Responding

The combination of the progressive revenue tax, per-wager fee, and Chicago city tax has pushed Illinois operators into strategies not seen in other markets. Minimum bet thresholds effectively price out small-unit recreational bettors. The surcharge model passes costs directly to customers. Both approaches risk pushing volume to offshore platforms that operate outside the Illinois tax code, a concern the Sports Betting Alliance cited when challenging the Chicago tax.

If you want to compare licensed Illinois sportsbooks by current offers, surcharge policies, and minimum bet requirements, Smart Bet Insider covers the Illinois market with up-to-date platform guides throughout the season.

Frequently Asked Questions

How are sports betting winnings taxed in Illinois?

Sports betting winnings are taxable income in Illinois at both the federal and state level. The state income tax rate is 4.95% flat. Winnings must be reported on the IL-1040 under “Other Income” regardless of whether a Form W-2G is issued. The federal W-2G reporting threshold was raised to $2,000 effective January 1, 2026, but all winnings remain taxable below that threshold.

What is the Illinois sports betting operator tax rate in 2026?

Illinois taxes sports betting operators on a progressive tiered structure. Rates range from 20% on the first $30 million in annual adjusted gross receipts to 40% on revenue above $200 million. A per-wager fee of $0.25 to $0.50 per bet applies on top of the revenue tax, and operators in Chicago face an additional 10.25% city tax on gross receipts.

What is the Illinois per-wager fee and how does it affect bettors?

The per-wager fee charges operators $0.25 on the first 20 million bets and $0.50 per bet beyond that, effective July 1, 2025. FanDuel and DraftKings passed the fee to customers as a flat $0.50 surcharge per bet. Other operators raised minimum bet thresholds instead. DraftKings waives the surcharge for straight wagers of $50 or more, parlays of $10 or more, and customers in its Silver loyalty tier or above.

Can I deduct gambling losses in Illinois?

Federally, you can deduct gambling losses up to the amount of your winnings if you itemize deductions, but the One Big Beautiful Bill Act caps that deduction at 90% of losses effective January 1, 2026. Illinois does not allow a deduction for gambling losses on the state return. All winnings are taxable at the state level and no loss offset is available.

What is the Chicago sports betting tax?

Chicago implemented a 10.25% tax on sports betting adjusted gross receipts for all licensed operators taking bets within city limits, effective January 1, 2026. The tax was part of Mayor Brandon Johnson’s 2026 city budget. The Sports Betting Alliance has challenged the city’s legal authority to impose the tax under the Illinois Sports Wagering Act, but betting has continued uninterrupted while the legal challenge proceeds.