Chicago Confirms City-Level Sports Betting Tax as 2026 Budget Takes Effect

Chicago’s 2026 city budget is now set to move forward with a new municipal tax on sports betting, adding another layer of cost for operators already facing one of the heaviest gambling tax environments in the United States. The $16.6 billion spending plan introduces a 10.25% tax on sportsbook revenue generated within city limits, with the measure scheduled to take effect on January 1, 2026.

Under city rules, the budget became law after Brandon Johnson declined to sign or veto it, allowing the legislation to take effect automatically. The sports betting levy survived negotiations despite the removal of other revenue proposals, including a corporate head tax, during revisions by the Chicago City Council. As a result, the tax will be implemented without a phase-in period or delayed enforcement.

Combined Taxes Push Effective Rates Higher

The new city tax compounds an already complex tax structure for sportsbooks operating in Chicago. At the state level, Illinois applies a progressive sports betting tax that ranges from 20% to 40% of adjusted gross revenue, depending on annual thresholds. Cook County, which includes Chicago, already imposes a separate 2% tax on sportsbook revenue.

Once the city levy is added, the minimum effective tax rate on sportsbook revenue generated in Chicago rises to 32.25%. For large national operators expected to exceed $200 million in annual revenue, the combined state, county, and city taxes could push effective rates beyond 50% for significant portions of the year. Major sportsbooks such as DraftKings and FanDuel are among those projected to reach Illinois’ top state tax bracket, intensifying the overall burden on their Chicago-based wagering activity.

Illinois has also increased costs through a per-wager surcharge introduced in mid-2025. Under that system, sportsbooks pay $0.25 on each of their first 20 million bets and $0.50 on every wager beyond that level. While total betting revenue has continued to grow, state data show that wagering volume has declined, suggesting bettors are placing fewer bets while wagering larger amounts.

For bettors, these costs are often reflected in odds, minimum wager requirements, and in-play limits offered by online sports betting sites operating in Illinois.

Licensing Requirements Add Operational Uncertainty

Beyond taxation, the 2026 budget introduces new licensing language that could complicate sportsbook operations within the city. The ordinance requires any business or individual accepting sports betting wagers in Chicago to hold a city-level license. That requirement is expected to apply to online sportsbooks, including major national brands already licensed at the state level.

The budget does not outline a straightforward process for obtaining these city licenses, creating uncertainty ahead of the January 1 start date. Industry groups have warned that, without clear licensing rules, operators could face compliance issues or be forced to pause betting in the city while regulatory details are resolved.

Revenue Goals and Broader Budget Context

City officials estimate the sports betting tax will generate approximately $26 million annually, assuming Chicago accounts for about 40% of Cook County sportsbook revenue. Using recent county revenue figures as a benchmark, the estimate aligns with roughly $25 million in annual collections under current market conditions.

The sports betting tax is part of a broader effort to close a projected budget shortfall. Chicago’s 2026 plan also includes revenue from the legalization of video gaming terminals within city limits, marking a shift in the city’s approach to gaming expansion. These machines are expected to come online ahead of the planned opening of Bally’s Chicago casino in the second half of 2026.

The move comes as Illinois continues to report substantial overall gambling revenue, with recent data showing a sharp increase in statewide casino revenue alongside ongoing changes to sports betting taxation.

State-Level Pushback Continues

Chicago’s adoption of a city-level sports betting tax has prompted state-level legislative responses. In October, bills were introduced in Springfield that would limit local governments' ability to impose their own gambling taxes or licensing requirements, placing that authority solely with the state.

One proposal would prohibit municipalities from regulating or taxing sports betting altogether. A separate measure would reduce Chicago’s share of the Local Government Distributive Fund by an amount equal to any revenue generated from a city-imposed sports betting tax.

Neither bill has moved out of committee, and no votes have been scheduled. Both measures are expected to remain under consideration when the Illinois General Assembly reconvenes in January. Meanwhile, the city’s 2026 budget, including the new sports betting tax and licensing provisions, is set to take effect on January 1.