As sports betting continues to rise in popularity across the United States, an increasing number of bettors are unfamiliar with the tax responsibilities that come with their winnings. Whether you’re a professional gambler or a casual sports fan placing bets during the Super Bowl, it is essential to understand that sports betting winnings are considered taxable income in the U.S.
The Internal Revenue Service (IRS) treats gambling winnings—including those from sports wagers—as ordinary income. This means that those who win must report their earnings and potentially pay both federal and state taxes. Failing to do so can lead to audits, penalties, and interest on unpaid taxes.
How Sports Betting Winnings Are Taxed
Under federal law, all gambling winnings must be reported as income. This includes not only earnings from sportsbook apps and casinos but also from fantasy leagues and organized betting pools.
Here are the key federal tax facts bettors need to know:
- You must report all gambling winnings on your tax return, regardless of amount.
- If you win more than $600 from a sports bookmaker or platform that requires a W-2G form, you’re likely to receive this form from the operator for tax filing purposes.
- Depending on the amount, the payer may withhold up to 24% for federal taxes from larger winnings.
The form filed with the IRS is Form W-2G: Certain Gambling Winnings. If you receive this form, a copy goes to the IRS, making it even more critical that your tax return matches the information provided. However, even if you do not receive a W-2G, you are still responsible for reporting the winnings.
Reporting Winnings and Deductions
All gambling income should be reported on Form 1040, Schedule 1, under the “Other Income” section. There is no minimum threshold—even $10 in winnings must be reported. However, the IRS does allow you to deduct gambling losses—but only if you itemize your deductions.
Here are some important details about deducting losses:
- Losses must be reported on Schedule A: Itemized Deductions.
- You may deduct only up to the amount of your gambling winnings.
- You should retain documentation of all wagers—both winning and losing—including tickets, statements from sportsbooks, and bank transaction records.
Keep in mind, the inability to deduct losses under the standard deduction means many casual bettors end up paying taxes on winnings without any relief from losses.
State Tax Considerations
In addition to federal taxes, most states that allow sports betting also tax winnings. Each state applies its own rules and tax rates, so it’s vital to understand your local requirements. For instance, states like New York and New Jersey not only have some of the highest state income tax rates but also require sports betting platforms to report user earnings above certain thresholds.
Some notable state tax considerations include:
- New York: State taxes are applied to all gambling winnings, and W-2G forms are usually issued for high-value winnings.
- Florida: No personal income tax, thus no state tax on gambling winnings.
- California: Taxes gambling winnings as personal income, but losses may also be deducted if itemized.
If you live in one state but place bets in another (e.g., betting online in Nevada while residing in Texas), your winnings may be subject to multiple tax reporting obligations depending on the specific laws.
Best Practices for Recordkeeping
Whether you’re a seasoned bettor or just enjoying the occasional flutter during playoffs, good recordkeeping is essential. The IRS recommends maintaining a gambling diary that includes:
- Date and type of each wager
- Location of the gambling activity
- Amount wagered and amount won or lost
- Names of others involved (if applicable)
These records can help support both income reporting and potential deductions for gambling losses. It’s also advisable to save digital receipts and screenshots if placing online bets.
Conclusion
Sports betting can be exciting and even profitable, but taxes are an unavoidable part of the game. Treat your winnings as taxable income, understand both federal and state obligations, and maintain accurate records to avoid issues with the IRS.
If you’re unsure about your individual filing needs, it’s best to consult a certified tax professional. Tax laws are complex and subject to change, especially as sports betting becomes more widespread state-by-state.