Understanding Taxes on Sports Betting: What Every Bettor Needs to Know

Sports Betting Winnings Are Taxable Income

In the United States and many other countries, sports betting winnings are considered taxable income by the government. This means that regardless of whether you win at a casino sportsbook, online platform, or through a private bookie, those winnings must be reported on your income tax return. The IRS classifies gambling winnings, including sports betting, as “other income” and expects you to report them in full, even if you do not receive a tax form such as a W-2G.

Federal and State Tax Responsibilities

At the federal level in the U.S., gambling winnings are taxed at the same rate as ordinary income. If your winnings are substantial, the sportsbook or betting operator may withhold a portion of your payout for federal taxes, typically at a flat rate of 24%. However, the actual rate you owe could be higher depending on your total annual income and tax bracket.

State taxes vary significantly. Some states impose additional taxes on gambling winnings, while others do not tax gambling income at all. For instance, Nevada does not have a state income tax, so residents may not owe additional state taxes on their winnings. Conversely, states like New York or California may impose high rates on gambling profits.

Reporting Requirements and Documentation

Bettors are required to report all gambling winnings, no matter how small. The IRS may issue Form W-2G if your winnings exceed certain thresholds, such as:

$600 or more from sports betting if the winnings are at least 300 times the wager
Any amount withheld for federal income tax

Even if you don’t receive a W-2G, you are still legally obligated to report your earnings. Bettors should maintain detailed records of all their sports betting activity, including:

Dates of wagers
Amounts staked and won
Betting platforms used
Receipts or account statements

Good recordkeeping can protect you in case of an IRS audit and may help you claim deductions for losses.

Deducting Gambling Losses

The IRS allows you to deduct gambling losses, but only up to the amount of your total gambling winnings. Losses must be itemized on Schedule A of your tax return. This means you can’t deduct more than you won, and you must be able to substantiate your losses with adequate records. If you don’t itemize your deductions, you cannot claim gambling losses at all.

Importantly, sports bettors who rely on the standard deduction instead of itemizing cannot deduct losses, which may result in paying taxes on net winnings even if overall they did not profit from betting.

Online Sports Betting and Tax Reporting

Online sportsbooks, especially those operating legally under state regulation, often provide detailed year-end summaries of your betting activity. These can be helpful for tax reporting. However, offshore or unregulated sportsbooks may not provide such documentation, placing more responsibility on bettors to track their activity.

Additionally, some states that have legalized online sports betting also require platforms to report user winnings to the state’s tax authority, further increasing compliance requirements.

Self-Employment and Professional Bettors

If you engage in sports betting as a full-time occupation and treat it as a business, the tax implications change. You may be considered a professional gambler, subject to self-employment taxes and different rules for expense deductions. This status is rare and scrutinized by the IRS, requiring you to prove that you engage in betting with continuity, intent to profit, and as your primary source of income.

In such cases, professional bettors can deduct ordinary and necessary business expenses related to their betting activities, such as subscriptions, travel, or data analytics tools—again, only with proper documentation.

Penalties for Failing to Report Winnings

Failure to report sports betting winnings can lead to significant penalties. If the IRS discovers unreported income, you may be subject to interest on unpaid taxes, accuracy-related penalties of up to 20%, and in extreme cases, criminal charges for tax evasion.

Even if the amounts seem small, consistent failure to report gambling income can trigger audits or legal complications. Always report all your winnings honestly and keep supporting documents for at least three years.

Conclusion

Sports betting can be thrilling and profitable, but it comes with real tax obligations. Whether you bet casually or seriously, it’s crucial to understand the tax implications of your activities. Keep detailed records, report all winnings, and consider consulting a tax professional to ensure compliance with both federal and state tax laws. Being informed and organized can save you from costly mistakes and help you enjoy your sports betting experience responsibly.