Sports Betting 2026 Federal, State Income Tax Guide - Prediction Markets Add Twist

By Bill Speros

Apr 8th, 2026 11:55 AM EDT

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With April 15 Tax Day next week, here's all the key information sports bettors need to know before filing their federal and state income tax returns. This year, our Sports Betting 2026 Federal, State Income Tax Guide will try to answer your questions.

As of April 7, the IRS has yet to issue its long-awaited guidance on what filers should do in terms of their income received. And prediction markets are caught in the middle, since they don't know how to report their information to the IRS. Prediction market operators have told bookies.com that they are awaiting that same guidance.

Millions who legally wagered on sports in 2025 face the sometimes-challenging task of how to determine what they may owe in taxes on gambling winnings.

New Tax Deduction Rule Does Not Apply - Yet

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

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.

The IRS allows you to deduct 100% of gambling losses up to the amount of your winnings, but only if you itemize all your deductions.

As part of the One Big Beautiful Bill signed into law last year, the amount of losses that gamblers could deduct from their will change.

Starting with the 2026 tax year, gamblers who itemize will only be able to deduct their losses up to 90% of their winnings.

However, that change in the law does NOT affect tax returns filed for income earned in 2025.

The limits on deductibility of losses rocked many in the betting community. Multiple attempts have been made in recent months to change the law. However, it remains in effect, again, staring with next year's tax return.

The good news is that nothing else has changed when it comes to filing your taxes on gambling-related income on the state and federal front - save for those in Missouri. Our Sports Betting 2026 Federal, State Income Tax Guide is here to help.

New Changes For Missouri Taxpayers This Year

Sports betting launched in Missouri on December 1.

Missouri residents pay 4.7% on adjusted gross income over $9,191.

As of the end of 2025, 39 states and Washington D.C. had some form of legal sports betting. Puerto Rico offers both online and retail betting. However, full-time residents of Puerto Rico pay no U.S. tax on income derived from sources in Puerto Rico. They do, however, have to pay local taxes to the Commonwealth.

3 Top Tax Tips For Sports Bettors

Ultimate Sports Betting 2024 Federal, State Income Tax Guide

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.

Save The W-2Gs You Get From Betting Operators

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.

Not All Losses Can Be Deducted On Your State Returns

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

And now, there are prediction markets offering sports-based event contracts in all 50 states (a preliminary injunction remains in effect against Kalshi in Nevada).

Yet, since the IRS has yet to issue guidance on that front, should consult a tax professional or financial advisor to see how your individual situation is affected.

“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.”

About the Author

Bill Speros

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Bill Speros is an award-winning journalist and editor whose career includes stops at USA Today Sports Network / Golfweek, Cox Media, ESPN, Orlando Sentinel and Denver Post.