With April 15 Tax Day upon us, here's all the key information sports bettors need to know before filing their federal and state income tax returns this year.

Millions who legally wagered on sports in 2023 face the sometimes-challenging task of how to determine what they may owe in taxes on gambling winnings. 

Five states launched sports betting in 2023: Ohio, Massachusetts, Florida, Kentucky
 and Maine. Bettors in those states will be wrestling with sports wagering-related tax bills for the first time. Thirty-seven states had legalized sports betting before 2024. 

All money earned from sports betting is taxable income. Thus, it could well impact both what you pay in federal and state income taxes. 

The IRS allows you to deduct gambling losses up to the amount of your winnings, but only if you itemize all your deductions. 

Therefore, it’s important to keep detailed records of the money you wager, what you win, and lose. You may be better off taking the standard deduction or itemizing once you run the numbers. 

3 Top Tax Tips For Sports Bettors 

The key to not being on the losing end of a bet with the IRS is good record keeping, says Alison Flores, Manager, The Tax Institute at H&R Block. 

She offers these initial tips to avoid trouble when determining your taxable gambling income. 

• Keep records of each wagering transaction, including the date, wager amount, and any wins and/or losses. Even if the betting organization or platform sends a Form for the activity, it’s better to be safe and maintain your own records.
• Report  all your winnings even if you think the amount is too small to be a big deal. Failing to report all your winnings could result in penalties and interest for underreporting your income.
• Determine your losses. Most taxpayers choose not to itemize their deductions because it isn’t advantageous to do so, but the only way to deduct your betting losses is to itemize.

Bettors should have received a W-2G from any platform from which they $600 or more, and the odds are 300-1 or greater. “You will still need to report your winnings on your taxes, even if you don’t receive the form,” Flores said. 

On individual winnings of $5,000 or more, books may withhold 24% for federal taxes. If this is the case, it will be shown on Box 4 of your W-2G. 

If you itemize your federal deductions, your net gambling winnings will be added to your AGI. If you take the standard deduction, all of your gambling winnings will be added to your AGI. 

“To complete your tax return, you’ll report your winnings as ‘gambling income’ on Form 1040, Schedule 1. If you have losses, you’ll report them on Schedule A if you itemize deductions. Take note though that you only get to deduct your losses to the extent of your winnings,” Flores said. 

Your federal tax rate will depend upon which bracket you fall into once your Federal Adjusted Gross Income (AGI) is calculated. 

States Carry Different Rules, Tax Rates

Bettors in Florida can stop right there since the Sunshine State has no state income tax. Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming also have legal sports betting and no state income tax.

States that do have their own income tax use different formulas to determine the income baseline.

“Some states start with your federal adjusted gross income, some start with federal taxable income and others come up with their own starting point. This is an important distinction as the starting point for your state return dictates how you include your losses and winnings,” Flores said. 

If your state uses the federal AGI figure to determine your tax liability, gambling winnings have already been taken into consideration since they were determined on your federal return.  

“If the state in question uses some other income for your starting point, then you must remember to report your winnings just like all your other income. Ohio starts their return with federal adjusted gross income, so your winnings should already be accounted for. Alternatively, you will have to report your winnings separately on a Massachusetts return,” Flores said. 

States also treat losses differently. Neither Massachusetts nor Ohio allows gambling losses to be deducted on a state tax return. So if you used them in determining any federal tax liability, they have to be added back in on the state tax return. 

“If the state starts with federal taxable income (income after the standard or itemized deduction) for your individual return, and you itemized on your federal return, then your losses will already be taken into account. However, if the state doesn’t allow for a deduction of losses, you may have to add any deduction you took on your federal return back to the state return,” Flores said. 

Increase In Betting Means Increase In Questions

With each new state legalizing sports betting, millions of new taxpayers find themselves not only liable for taxes on their gambling winnings, but asking questions they may have never considered before playing their first legal sports wager. 

This is the sixth Tax Season since the Supreme Court’s PASPA decision cleared the way for nationwide sports betting in May 2018. 

“Many people assume losses should be directly netted with gains, but they can’t,” Flores said. “We have gotten more requests for information than we used to. Luckily the rules haven’t really changed over that period of time for gambling winnings on the federal level, but with the increase in the standard deduction, limits on state and local income tax deductions, and the repeal of miscellaneous itemized deductions because of the Tax Cuts and Jobs Act, there has been some confusion about losses because fewer people are itemizing than in the past.” 

As always, you should consult a tax professional or financial advisor to see how your individual situation is affected.