Are you betting on the Super Bowl this year? If so, you’re not alone. Sports betting is now legal in 38 states plus Washington D.C., and with the rise of legal sports betting sweeping the nation, more and more people are joining in on the action.
But how does sports betting affect your taxes? Should you be concerned about paying taxes on your winnings? The answer is yes—just like most forms of income, if you win, you’ll have to pay taxes on those earnings to Uncle Sam.
Read on to learn everything you need to know about sports gambling taxes, how to report your wins and losses, and ensure you stay compliant with IRS regulations.
Understanding Gambling Income and Taxes
Gambling income is considered taxable income by the IRS. This includes winnings from all types of games of chance, such as sports betting, casino games, lotteries, and more. Gambling income is subject to federal income taxes, and it may also be subject to state and local taxes depending on where you live.
It’s essential to understand that gambling income isn’t just limited to cash winnings. The fair market value of non-cash prizes, like cars, trips, or other items, is also taxable.
For sports betting, the IRS treats all winnings from sports bets as taxable income, whether the bets were placed with an online sportsbook or at a traditional brick-and-mortar sportsbook.
The tax implications of sports betting can be significant, and it’s crucial to know how to properly report your sports betting income and losses on your tax return to avoid penalties.
Do You Have to Pay Taxes on Sports Betting Winnings?
The simple answer is yes. Just like income from your wages or investments, earnings from sports gambling are subject to taxes. This includes taxes on all winnings from sports bets placed both in-person and online.
However, the good news is that you can deduct gambling losses from your gambling income (but only up to the amount of your winnings). This deduction can help lower your tax liability, which is particularly beneficial for those who don’t win consistently.
You’ll be required to pay federal income tax on any sports betting winnings. In addition to federal taxes, you may also have to pay state taxes, but the state tax rate will vary depending on where you live and where you placed your bets.
How Are Sports Betting Winnings Taxed?
In the United States, gambling winnings are taxed at the federal level and can also be taxed at the state level. The federal tax rate for gambling winnings is 24% if you win over $600 in a single wager, and the winnings exceed 300 times the amount of the bet.
Federal Tax Rates
- Federal tax withholding is generally set at 24% for gambling winnings over $600, although you may owe more or less depending on your total income for the year.
- You’ll report your winnings on Form 1040 under the “Other Income” section.
State Tax Rates
- State taxes on gambling winnings vary widely. Some states have no gambling tax at all (e.g., Nevada), while others, like New Jersey, tax gambling winnings at a higher rate.
Always check your state’s sports betting tax laws to ensure compliance with state-specific regulations.
How to Report Your Gambling Winnings on Your Taxes
When you win a significant amount of money, sportsbooks may send you a Form W-2G that reports your winnings and any tax withheld. This form is provided when you win $600 or more, and the winnings exceed 300 times the wager amount.
- Federal tax withholding will likely be 24% if you receive a W-2G.
- State taxes will be calculated separately and can vary depending on your jurisdiction.
It’s important to note that the 24% tax withholding is just an estimate. When you file your taxes, you’ll need to calculate your total tax liability, including all your gambling wins and losses, and reconcile the taxes already withheld.
To report your gambling income on your tax return:
- Use Schedule 1 on Form 1040 to report any other income from gambling.
- If you’re itemizing deductions, use Schedule A to report any gambling losses. If you opt for the standard deduction, you cannot claim gambling losses.
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Can You Deduct Gambling Losses?
Yes! You can deduct gambling losses, but only up to the amount of your winnings. So, if you won $1,000 and lost $1,200, you can only deduct $1,000 in losses, reducing your taxable income.
However, to claim these losses, you must itemize your deductions on your tax return. If your total gambling losses do not exceed the standard deduction for your filing status, you may not benefit from itemizing.
Standard deduction for 2024:
- $14,600 for single filers
- $29,200 for married couples filing jointly
- $21,900 for heads of household
If your gambling losses are less than the standard deduction, it’s probably best to use the standard deduction instead of itemizing.
Keep a Detailed Record of Your Gambling Income and Losses
Accurate record-keeping is essential for sports bettors. While sportsbooks may report your winnings, they are unlikely to report your losses. To ensure you can claim your full deduction for gambling losses, maintain a detailed record of your gambling activities.
Here’s what you should keep track of:
- Receipts from sportsbooks (online or in-person)
- Tickets, statements, and other documentation of your betting history
- Date, type of wager, and the amount of winnings or losses for each bet
These records will be crucial if you’re ever audited by the IRS.
State-Specific Tax Considerations
Each state with legalized sports betting has its own tax laws regarding gambling. For example, some states have higher taxes on gambling winnings, while others don’t tax gambling income at all.
In states like Nevada, gambling winnings are not taxed, while in states like New Jersey and Pennsylvania, sports betting winnings are subject to state income taxes in addition to federal taxes.
Be sure to check your state’s sports betting tax rates to avoid surprises at tax time.
Common Mistakes Bettors Make Regarding Taxes
Here are a few common mistakes that sports bettors often make when it comes to taxes:
- Failing to report all winnings – Make sure to report all of your gambling income, even if you didn’t receive a Form W-2G.
- Not keeping proper records – You’ll need detailed records of your winnings and losses to properly file your taxes.
- Ignoring state-specific tax rules – Each state has its own regulations, and not adhering to them can result in penalties.
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Navigating your taxes can be tricky when you add other types of income—like gambling winnings–into the mix. The sports betting industry is heavily regulated, and understanding the tax implications can be complex. Let the experts at ezTaxReturn help.
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Conclusion
Whether you’re a casual bettor or a more experienced one, it’s important to understand you do have to pay taxes on sports betting. Always report your winnings, keep accurate records, and be aware of both federal and state tax laws. By staying informed and filing your taxes correctly, you can avoid surprises and ensure you’re not caught off guard when it’s time to pay your taxes.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
