When it comes to sports betting, the Supreme Court ruled in favor of states’ rights in the U.S. in 2018. Since then, the legalization of gambling has risen in popularity across the country.
Some states even fast-tracked gambling legislation in 2021 for the upcoming NFL season. An estimated 45 million Americans claimed they’d be betting on NFL games last year.
Do you have to pay taxes on online sports betting? The quick answer is Yes.
Taxes on gambling winnings pertain to federal and state tax laws. Online betting sites that don’t require an SSN may differ.
Let’s take a closer look at sports betting taxes.
Federal Tax Laws on Sports Betting
The overturning of the federal ban on sports betting led to each state developing its system. The federal income tax laws remain.
According to the IRS, the federal tax on gambling winnings mandates proper documentation. A form W-2 G, Certain Gambling Winnings, must get issued by the payer (sportsbook or casino).
You’ll report any other winnings as “Other Income” on a Form 1040 or Form 1040-SR.
Federal Tax Rate
Many sources suggest the estimated federal tax you’ll need to pay on gambling winnings is a flat rate of 24%. You may also deduct your losses.
Gambling losses may get reported when you itemize your deductions on a Schedule A (Form 1040). You may claim losses under “Other Itemized Deductions.”
The federal tax laws on sports betting apply to winnings of $600 or more. While you’ll still need to report any winnings under that amount, you won’t get taxed.
Also, you can only itemize your gambling losses if you maintain proper documentation.
How To Deduct Your Gambling Losses
For example, if you won $1,000 but lost $400, you can deduct your losses from your total winnings. Thus, your taxable income gets reduced.
If you won $10,000 in sports betting but lost $6,000, your taxable income will be $4,000.
In contrast, say you won $5,000 but lost $10,000. You’ll only be able to deduct losses from your total winnings of $5,000.
In other words, the government won’t penalize you for losing more than you won. It won’t allow any taxable credits, either.
You’ll need to keep track of your wins and losses if you plan to itemize your deductions at the end of the year. (The IRS recommends “receipts, tickets, statements, or other records.”)
Federal Penalties for Not Reporting Gambling Winnings
Federal penalties for not reporting gambling winnings carry fines up to $100,000. You may also face jail time for up to five years.
Online sportsbooks maintain logs that should be available via your dashboard. It might be a good idea to keep track of that each month. Print it out for your records.
What about state taxes on sports betting?
State Taxes on Sports Betting
You might also need to pay state taxes if you won money on sports betting within a year. You’ll need to refer to your state’s laws on taxable income.
You’ll report your winnings on your state tax returns.
These states with legal sports betting have no income tax:
- New Hampshire
Florida and Texas are also two major states without an income tax. Sports betting legislation is still working its way through the legal systems there.
Sports betting is a form of entertainment that has become popular worldwide. Gambling has hardly been easier with smartphones and an internet connection.
The legalization of gambling derives from the tax potential. Gambling is a massive industry. So taxes help to regulate it.
That means a better environment for players.
With state regulations in place, reputable companies may compete for new customers. Many online sportsbooks offer promotions and bonuses to attract gamblers.
Contact your sportsbook or local tax professionals to learn more about their policies. You’ll want to follow any corresponding tax laws at the state and federal levels.
Many states use taxes on gambling to fund public programs, education, and economic development.
In that regard, everybody wins.