Tim’s Tax News on the Tenth – July 2025

Beginning July 1, Illinois residents will face a series of tax increases related to the Fiscal Year 2026 budget, which takes effect from July 1, 2025, to June 30, 2026. These increases are from the $55+B state budget that is supposed to generate $700+M of new taxes ranging from gasoline, short-term rentals, tobacco, sports gambling, and much more. The gasoline tax will increase from 47 cents per gallon to 48 cents per gallon, and diesel fuel will increase from about 54 cents to 55 cents. The increased gasoline tax is based on lawmakers' votes in 2019 to tie future increases to inflation, with the purpose of the tax to fund needed infrastructure improvements throughout Illinois. 

Short-term rental companies such as Airbnb and VRBO will be subject to and must pay the Illinois state Hotel Operators’ Occupation tax. The hotel tax is on top of other state and local lodging taxes already in effect for short-term rentals (under 30 days). Additionally, one of the most significant increases is the state tax increase on most tobacco products, such as chewing tobacco and cigars, rising from 36% to 45%. Vapes, and other smokeless nicotine products, such as Zyn, are seeing taxes on their products triple, increasing from 15% to 45%. 

The biggest shock, however, is the recent approval of the Illinois state tax on sports betting. The tax is aimed at major sports betting websites such as FanDuel and DraftKings in particular. The new tax applied to sports betting affects each wager that a sportsbook accepts. The tax is 25 cents per bet for the first 20 million wagers, and 50 cents per wager after that. Flutter, the owner of FanDuel, said on June 10, 2025, that they will be introducing a per-wager transaction fee to offset the new tax the state of Illinois has instituted. The fee is set at 50 cents per wager; however, Flutter states they would immediately remove the transaction fee cost shall the state reverse its tax decision. DraftKings has not explicitly stated that they would be adding a charge, but stated that they would be releasing a statement soon, implying that they will follow FanDuel in implementing a transaction charge. 

Illinois state law requires you to withhold lottery, wagering, and gambling winnings of more than $1,000. Payments received in taxable years ending on or after December 31, 2021, of winnings from sports wagering must be conducted under the Sports Wagering Act and are allocable to the state of Illinois. 

If you meet the threshold of winnings from the Illinois lottery, gambling, pari-mutuel wagering, and or sports wagering, you must complete an Illinois Department of Revenue Form IL-5754 Statement by Person Receiving Gambling Winnings. This form provides a record of who received winnings and to whom the winnings are taxable. Notably, the payer will use the information on the Form IL-5754 to prepare Federal Form W-2G.

Importantly, if you receive payment of Illinois lottery winnings of $1,000 or more, you have met the minimum threshold and must file and complete a Form IL-5754. Furthermore, gambling, pari-mutuel wagering, and sports wagering winnings that are subject to federal withholding (more than $5,000) must also complete a Form IL-5754. Note, in Illinois, you must keep track of your Form IL-5754, and by January 31 of each year, you must submit your W-2G electronically to the Illinois Department of Revenue. Additionally, if you withheld from gambling winnings, you must give each recipient two copies of federal Form W-2G. Lastly, it is important you keep any undeliverable Form W-2G for at least three years after the date you are required to give the form to the recipient.

 

Federal Form W-2G is for Certain Gambling Winnings. The form should be completed and filed to report gambling winnings and any federal income tax withheld on those winnings. The requirements for reporting and withholding depend on: 

• The type of gambling 
• The amount of the gambling winnings, and 
• The ratio of the winnings to the wager 

The IRS website states, the withholding rate under Section 3402(q) applicable to winnings of $5,000 or more from sweepstakes, wagering pools, certain parimutuel pools, jai alai, and lotteries is 24%.⁷ This rate appears in the Withholding, Regular Gambling Withholding for Certain Games, Noncash payments, and Backup Withholding sections under Specific Instructions for Form W-2G; the Withholding section under 1. Horse Racing, Dog Racing, Jai Alai, and Other Wagering Transactions Not Discussed Later; the Withholding section under 2. Sweepstakes, Wagering Pools, and Lotteries; and the Withholding and Forms W-2G for Multiple Winners section under Specific Instructions for Form 5754. 

If you are an avid Bingo, Keno, or Slot player, you may also have to report your income. The IRS requires a payee of gambling winnings meeting the reporting thresholds for bingo and slot machines ($1,200), keno ($1,500), and a payee of gambling winnings meeting the withholding thresholds from horse racing, dog racing, jai alai, sweepstakes, wagering pools, lotteries, and certain other wagering transactions, but not from a state-conducted lottery, you must present two forms of identification, one of which must include the payee's photo. 

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 31 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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