If you gain wealth of any kind, you must pay taxes on it. This includes physical property, money and debt forgiveness. Likewise, winning a bet counts as gaining wealth, which means you must report it to the taxing authorities. In 2018 a Supreme Court ruling struck down federal legislation that banned the practice nationwide. Today the legality of sports betting is both a federal and a state matter. This has allowed states to set their own rules. Here’s what you need to know. A financial advisor can help you manage and invest your monetary assets.
How the IRS Taxes Sports Betting Winnings
The IRS taxes winnings differently whether you are a casual bettor or in the trade and business of gambling. This article will address gambling winnings when you are paying individual taxes. Business taxes are beyond the scope of this article and are claimed as Schedule C revenue over costs.
Gambling winnings, per the IRS, “are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.” This includes any winnings made betting on sporting events or participating in fantasy leagues.
You must report all gambling winnings to the IRS regardless of amount. It is often misreported that you don’t owe taxes on winnings less than $600. This is incorrect. The winner must report all winnings to the IRS on their income taxes. Meanwhile, the payer must report all winnings to the IRS when someone has won either more than $600 or more than 300 times their initial steak. (For example, if you bet $1 and win $400, the payer must report that win to the IRS since you would have won 400 times your steak.)
Taxpayers who itemize their taxes can deduct their losses on Schedule A. However gambling losses can only offset gambling winnings. They cannot be used to reduce your taxable income from other sources. (For example, if you won $1,000 in 2021 and lost $1,500, you can deduct up to $1,000 worth of your losses.) As with all deductions, you must keep records and receipts of all claimed losses.
The manner in which you make the bet does not matter when paying federal income taxes. For example, the tax implications for the IRS are the same regardless of whether you make the bet in person or via an app.
How States Tax Sports Betting Winnings
States have set rules on betting, including rules on taxing bets, in a variety of ways. Depending on your state, legal sports betting may be a combination of in person, online, retail (at specifically licensed physical properties). At time of writing 17 states continue to ban sports betting entirely. Before you place a bet, research your state’s specific laws to make sure it’s legal where you are.
Every state has its own laws when it comes to gambling taxes. Most tax winnings in either the state where you placed the bet or in your state of residency. The explosion of online and app-based sportsbooks. A sportsbook is the institution where you can place bets on sporting events, otherwise known as your bookie. The legal issues around online sportsbooks have not yet been fully resolved. These institutions argue that all bets occur either where the company is registered or where it keeps its servers. Most tax and law enforcement agencies argue that all bets occur either in the bettor’s state of residence or where they are at the time they make the bet. At time of writing this was not fully resolved.
The following table is based on Tax Foundation information.
|How States Tax Sports Betting Winnings|
|Arizona||Mobile and retail||10% online, 8% retail|
|Arkansas||Retail only||13% of first $150 million, then 20%|
|Colorado||Mobile and retail||10%|
|Connecticut||Mobile and retail||18% online, 13.75% retail|
|Illinois||Mobile and retail||15%|
|Indiana||Mobile and retail||9.5%|
|Iowa||Mobile and retail||6.75%|
|Louisiana||Mobile and retail||15% online, 10% retail|
|Maryland||Mobile and retail||15%|
|Michigan||Mobile and retail||8.4%|
|Montana||Lottery monopoly||Revenue minus management fees|
|Nevada||Mobile and retail||6.75%|
|New Hampshire||Lottery monopoly||51%|
|New Jersey||Mobile and retail||14.25%|
|New Mexico||Retail only||N/A|
|New York||Mobile and retail||51%|
|North Carolina||Tribal||Revenue minus expenses|
|Ohio||Mobile and retail||10%|
|Oregon||Lottery Monopoly||Revenue minus management fees|
|Pennsylvania||Mobile and retail||36%|
|Rhode Island||Lottery monopoly||51%|
|South Dakota||Retail only||9%|
|Virginia||Mobile and retail||15%|
|West Virginia||Mobile and retail||10%|
|District of Columbia||Lottery monopoly online, retail||10%|
How To Pay Taxes on Winnings
Sportsbooks must report all winnings over $600 to the IRS. This does not absolve you of responsibility to report that income yourself, in the same way that you still have to file your taxes even though the IRS has your W-2. It does mean, however, that you should be scrupulous when you file your taxes. Many people underreport gambling winnings. There are many reasons not to do this, including the fact that the IRS may already know all about your income.
Depending on the nature of your bet, you may receive a Form W-2G from whoever pays out your winnings. In the alternative, you might receive a 1099-MISC or a 1099-K from the payer. This is particularly true if they use some form of third party institution to make your payment.
Regardless of the tax form you receive, as an individual you must report gambling winnings (including sports bets) on your Form 1040, Schedule 1, Line 8, under “Other Income.” Remember: This is any and all winnings. You can only deduct losses if you itemize your taxes. The same is true of up-front money that you stake. Guidances issued by the IRS state that you can deduct up-front stakes on Schedule A, which is not available to people who take the standard deduction.
Money that you do not stake up front, but merely wager as a potential loss, is not deductible unless you lose. For example, say you wager $100 on a football game and win $1,000. If you give your bookie the $100, this is known as up-front stakes. If you then receive $1,000 back, you can deduct the $100 on your Schedule A. If you give the bookie nothing, but only would owe the $100 in case of a loss, you have not placed any up-front stakes and cannot deduct that $100 bet on your Schedule A.
There is a lack of clarity on the issue of whether up-front stakes reduce your taxable winnings by the amount that you initially wagered. Some guidelines indicate that if you stake $100 and collect $1,000, you must pay taxes on the full $1,000 collected. Other sources of authority indicate that if you stake $100 and collect $1,000, you only need to pay taxes on the $900 by which you were enriched. This ambiguity only applies to wagers with up-front stakes.
Say that you make a $1,000 bet on a college football game. It goes well and you win $2,000. Later on, you bet another $1,000 on a different game. It goes poorly and you lose your bet. There are two possible outcomes:
- If you claim the standard deduction: You report your $2,000 winnings as miscellaneous income on your 1040 Schedule 1. This is added to your annual income and adjusts your taxes by the appropriate amount.
- If you line-item your taxes: You report your $2,000 winnings as miscellaneous income on your 1040. On your Schedule A, you report your $1,000 loss. If you placed up-front stakes in your winning bet, you can deduct that $1,000 on your Schedule A as well.
While a W-2G or a Form 1099 from your payer should indicate taxable income, be sure to check with a tax professional if you are unsure how to proceed.
The Bottom Line
Like all forms of gambling winnings, money you get from sports betting counts as income. You must pay federal income taxes on all winnings regardless of amount and may owe state taxes as well. The rules of state taxes are highly jurisdiction-specific, however, so be sure to research the specific laws of your own state.
Tips on Taxes
- You know what has some of the most interesting psychology and economics on the entire market? The lottery.
- Gambling can be a fun way to pass the time, but it is not a sound form of financial planning. Consider working with a financial advisor to develop a genuinely sound plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s Tax Return Calculator to see how your income, withholdings, etc.
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