By Chet Fussman | | 6 mins
How to Pay Taxes On Your Sports Betting Winnings
Winning at sports betting is fun, exciting and financially rewarding. Paying taxes on those winnings is none of those things, but it’s necessary.
Sports betting winnings are considered taxable income and must be reported each year. According to the Internal Revenue Service, it is your responsibility to keep track of sports betting wins and losses and to enter the appropriate amounts on your annual tax returns.
This guide addresses several sports betting tax questions. If you’re not clear about a specific tax issue, it’s always wise to consult an accountant, tax professional or financial advisor who can answer questions and help avoid potential errors and penalties.
Is Sports Betting Taxable Income?
Yes, all gambling income is taxable, not just sports betting. That includes winnings from poker, casino games, pari-mutuel wagering, keno and lottery.
Depending on the form of gambling, payoffs that reach a certain threshold automatically trigger IRS notification. In sports wagering, you will receive a W-2G form if your winnings are $600 or more and the payout is at least 300 times the amount of the wager. The IRS also receives a copy of that W-2G.
It makes no difference if your sports winnings were earned at an online or physical sportsbook or on a parlay wager or longshot futures bet. Even if the winnings were simply added to your online account and never withdrawn, it’s considered taxable income.
If you won prizes instead of cash in a sports betting tournament, the IRS requires you to report the fair market value of those prizes.
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How Much Will I Have to Pay in Taxes?
A bettor should be prepared to pay about 24% federal tax on gambling winnings. They may also have to pay state income tax on their winnings, depending on the state where they reside.
In some cases, federal tax may be automatically deducted from your winnings if the payoff meets a certain threshold. For example, sportsbooks are generally required to withhold 24% of net winnings when a wager pays out more than $5,000 of net winnings with odds of 300-1 or greater. Note that the 24% is an estimate and you may owe more or less than that amount depending on your federal income tax bracket.
Even if you don’t cash a big sports bet ticket or receive a W-2G form, it is still your responsibility to report sports wagering (or any gambling) winnings on your tax returns, according to the IRS.
Filling Out Your 1040 Tax Form for Winnings
There is no specific line on Form 1040 for gambling winnings. Your total sports betting winnings are reported as “other income’’ on Schedule 1, Line 8, which you attach to Form 1040.
You will save money by paying taxes on your net winnings, rather than overall winnings, if you itemize deductions on your tax return. For more on the possibility of itemizing (which allows you to deduct some or all gambling losses), see the Writing Off Losses section below.
If you need help reading your W-2G form, the amount of your reportable gambling winnings is listed in Box 1. The date won and type of wager are in Box 2 and 3. If federal tax was automatically withheld from your winning wager(s), the amount withheld is listed in Box 4.
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The Importance of Record Keeping
The significance of keeping accurate records of each gambling win and loss cannot be overstated. The IRS suggests bettors keep a diary of sports betting wagers and may require you to substantiate wins and losses, especially if you are able to deduct losses on your tax return.
Your documentation should include all W-2G forms received in a given year; wagering tickets with dates, location, amount won or lost; who (if anybody) was with you at the time; canceled checks; and receipts from sports betting operators.
If you bet online, sportsbooks provide a record of all of your wagers that can be easily accessed electronically. Keeping accurate records when betting at in-person sportsbooks is more difficult, but necessary.
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Writing Off Losses
The IRS requires bettors to report sports gambling winnings. Does that mean bettors can also deduct sports gambling losses?
The answer is yes, but only if you itemize deductions on your federal tax return.
In 2018, the Tax Cuts and Jobs Act nearly doubled the amount of the standard deduction. As a result, between 85 and 90% of taxpayers reportedly chose to take the standard deduction on their 2019 tax returns. That made them ineligible to itemize and deduct gambling losses.
For taxpayers who itemize, deductions for sports betting losses cannot exceed winnings in any calendar year. So if you had $5,000 in sports betting winnings and $8,000 in losses, your deduction is limited to $5,000. The remaining $3,000 cannot be carried forward. The losses are reported on your Schedule A form, separate from your gambling winnings. Do not report your net profits on the “other income’’ line of Schedule 1. That is for total gambling winnings.
Will I Still Need to Pay State Taxes?
Depends on the state where you live. Residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not pay taxes on any gambling winnings because none has a state income tax. Residents of New Hampshire and Tennessee are not taxed on gambling winnings because those two states only tax investment income and interest.
In all other states, bettors must report sports betting winnings on their state income tax form. The tax rate varies by state. Some states have a flat rate individual income tax, others adjust rates depending on income level. For example, Colorado assesses a flat tax of 4.63%.
California’s rate ranges from 1% for the lowest income level to 13.3% for incomes above $1 million.
Is Filing as a Professional Gambler Different?
Yes. But first let’s define what a professional gambler is.
According to a 1987 U.S. Supreme Court ruling, “if one’s gambling activity is pursued full time … to the production of income for a livelihood, and is not a mere hobby, it is a trade or business.’’ In short, the professional must gamble with the intent to make a profit.
Professional gamblers are treated as self-employed individuals. Rather than listing gambling winnings as ‘’other income,’’ they report winnings and losses on Schedule C, which also allows them to deduct several of their business expenses, such as Internet costs for online wagering, travel expenses and legal fees.
But the same rule that applies to everyone else over losses also applies to professional gamblers. Deductions from gambling losses cannot exceed winnings in any given year and cannot be carried over.
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How Will the IRS Know if I Don’t Pay Taxes?
If your sportsbook operator sent you a Form W-2G, it also sent a copy to the IRS. So the IRS is automatically aware of those gambling winnings. If you did not receive a W-2G form, the IRS says taxpayers are still required to report all gambling income.
If the IRS is aware of gambling winnings that were not reported, the agency could simply tell you to report them. Or it may impose penalties and interest, adding to your tax bill.
Hire a Tax Professional to Avoid Problems
If you’re not certain about any aspect of how to report gambling winnings (and losses), it’s always best to consult a tax professional to avoid potential mistakes. For a bettor who is declaring gambling winnings for the first time, tax preparation can be intimidating. Hiring a tax professional can help avoid confusion over IRS gambling rules, save time, and perhaps money.