Sports Betting Taxes: What You Need to Know

Sporting betting has become an incredibly popular activity in the United States. The sports betting industry brought in $10.92 billion in 2023, a 44.5% increase year-over-year. Americans bet more than $119.84 billion within that period and had a win percentage of 9.1%, an increase from 8.1% in 2022.

While sports betting can be a fun way to make competitions more interactive, it’s still important to track your winnings and report them to the IRS. This is still considered revenue in the eyes of the government. Here’s what you need to know about taxes on sports betting and how to report them.

Taxes on Sports Betting: A Growing Source of Revenue

One of the main reasons why states lobbied to legalize sports betting was to collect tax revenue on the winnings. On a state and national level, sports betting generated $505.96 million in tax revenue for the third quarter of 2023 alone. This was slightly lower than the $571.48 million generated in the second quarter of 2023.

Individual states benefit from this tax revenue. New York collected the most tax revenue at $188.53 million during the third quarter of 2023, followed by Indiana at $38.6 million and Ohio at $32.9 million. This revenue supports economies and lets state governments fund key infrastructure programs. Sports betting tax revenue can be allocated to improve roads and highways, fund law enforcement, and support public education. The more sports betting tax revenue states collect, the more resources they can provide to residents.

Do You Have To Pay Taxes on Sports Betting Winnings?

The Internal Revenue Service (IRS) considers gambling winnings a form of income, not unlike your paycheck or inheritance. This means you need to report the income and pay taxes on it when you file each year.

You’re required to report any gambling winnings that exceed $600 and 300 times the wager amount. While many casinos or gambling institutions will provide tax forms when you collect your winnings, you can find these documents online. It is up to the individual to report their winnings and complete the proper paperwork.

Taxes on gambling winnings aren’t limited to cash. They also apply to the fair market value of any prizes you take home. For example, if you win a $1,000 bottle of wine, a $50,000 car, or a $10,000 vacation to Hawaii, you will need to report the cash value of these prizes.

Sports Betting and Taxes: When Do You Have To Report Your Winnings?

If you don’t want to pay taxes on sports betting wins, the best way is to place small bets. You only need to report your earnings if they exceed $600. If you turn a $5 bet into $25, it doesn’t need to be shared with the IRS. Additionally, if you win more than $5,000, the payer may need to withhold 28% to cover federal income tax. This means your take-home proceeds might be less than you expect.

While these are good limits to keep in mind, limiting thresholds will vary depending on the type of game you play. For example, if you play bingo or succeed at slots, you need to report any winnings that exceed $1,200. The reporting threshold for winnings on a keno game is $1,500. These winnings are also calculated after the wager, which means the more you bid, the more you deduct. A $1,200 bingo win with a $20 wager would have greater taxes than the same win with a $200 buy-in.

How Do You Report Sports Betting Winnings?

The procedure for reporting winnings on sports betting can vary depending on the situation. However, there are two tax forms most sports bettors need to be aware of: the W-2G and Form 1040.

Form W-2G

When you win more than $600, you will need to fill out IRS Form W-2 G. The casino or gambling institution may give you a physical copy when you collect your winnings or mail the form to your house. Submit this form with your federal tax returns when you file in the spring.

Here’s some of the information you will need to provide to complete form W-2G:

• The payer’s information, including their address, phone number, and Taxpayer Identification Number (TIN);
• Your information, including your name, address, and TIN;
• The reportable winning amount;
• The date on which you won;
• The type of wager;
• Any withheld federal income tax;
• Any withheld state or local income tax.

The form will look similar to the W-2 documents that your employer sends out each January.

Form 1040

You will also need to report your sports betting winnings on Form 1040, which is used for additional income. Section 8b on Schedule 1 is where you will report your gambling winnings. You may also need to fill out section 8i for prizes and awards. The copies of the W2-G forms will reflect the total amount reported here.

Can You Deduct Sports Betting Losses?

The IRS allows sports bettors to deduct their losses, but only if they itemize their taxes. You will need to fill out Schedule A in Form 1040 and report your losses in section 16 (“Other Itemized Deductions”). The amount you deduct cannot exceed the winnings you report.

Sports bettors who want to deduct their losses must keep accurate records of their bets. This includes a diary of bets and receipts of the wagers, wins, and losses. If you are audited by the IRS, you can provide copies of these receipts and tickets as proof that your taxes are accurate.

How Do Taxes on Sports Betting Vary by State?

Sports betting is legal in 38 states and the District of Columbia; however, tax laws vary significantly from one state to the next. Nevada and Iowa have two of the lowest sports betting tax rates at 6.75%. New York has the highest tax rate at 51%. Other states in the Northeast also have steep tax rates on sports betting.

Tax rates can also vary depending on whether the bets were placed online or at brick-and-mortar gambling institutions. It might be more profitable for you to visit a physical location to place your bets if your state has a lower tax rate for in-person winnings compared to digital ones.

Knowing the tax rate of sports betting winnings can affect where and how you bet. You can have a clearer idea of what taxes you have to pay and how to report them. Sports betting can be a fun and lucrative activity, but you still need to pay your local, state, and federal taxes. This will fund community projects and keep you on the good side of the IRS.