Sports Betting Tax in the USA: A Complete Overview

Federal Tax Obligations for Sports Bettors

In the United States, all gambling winnings, including those from sports betting, are considered taxable income by the Internal Revenue Service (IRS). Bettors are required to report their winnings as “Other Income” on Form 1040. The IRS does not differentiate between casual bettors and professional gamblers—any amount won is subject to taxation, regardless of whether a W-2G form is issued.

When a bettor wins over $600 at a sportsbook, the operator may issue Form W-2G, which is also submitted to the IRS. However, even if a W-2G is not issued, the bettor is still legally required to report all winnings. Federal income tax may be withheld at a flat rate of 24% for certain large payouts.

State-Level Taxation: A Varied Landscape

State taxation of sports betting winnings varies significantly across the country. Most states with legal sports betting treat gambling winnings as taxable income, but the tax rates and rules differ widely.

New York: Sportsbooks are taxed at a 51% rate on gross gaming revenue, one of the highest in the country. Bettors must also pay state income tax on their winnings.
New Jersey: The state taxes retail sports betting at 9.75% and online sports betting at 13%. Bettors are responsible for reporting their net winnings on state returns.
Pennsylvania: Sportsbooks pay a 36% tax on gross revenue. Individuals pay state income tax (3.07%) on gambling winnings.
Nevada: No state income tax for individuals, but sportsbooks pay a 6.75% tax on revenue.
Illinois: Sportsbooks pay 15% tax on revenue (increasing to 20%-40% under new laws in 2024). Bettors must pay personal income tax (4.95% flat rate).
Tennessee: No state income tax on individuals, but sportsbooks pay a 20% tax on adjusted gross income.
California: Sports betting is not yet legalized statewide; however, tribal casinos and card rooms offer limited forms of gambling.

Reporting Losses: A Critical Tax Deduction

Bettors may deduct gambling losses, but only up to the amount of their reported winnings, and only if they itemize deductions. Losses are reported on Schedule A under “Other Itemized Deductions.” Accurate recordkeeping is essential, including dates of wagers, amounts, outcomes, and locations.

Importantly, professional gamblers who meet specific IRS criteria may report winnings and losses as part of their trade or business on Schedule C, which could allow for additional deductions like travel expenses.

Sportsbook Tax Responsibilities

Licensed sportsbooks are responsible for complying with both federal and state reporting requirements. They must submit Form W-2G for qualifying wins and withhold federal taxes when necessary. Additionally, sportsbooks pay state-level taxes based on their revenue, which can impact profitability and promotional offerings.

In some states, like New York and Pennsylvania, high tax rates have forced sportsbooks to reduce bonuses and odds boosts to manage costs. This has indirectly affected the player experience and market competitiveness.

Withholding Requirements and Forms

Form W-2G: Issued by sportsbooks for large wins, typically $600 or more with 300x original wager.
Form 5754: Used when multiple bettors share a win.
Schedule A: For reporting itemized deductions like gambling losses.
Form 1040: Where all gambling winnings are reported under “Other Income.”

Crypto Betting and Offshore Sites

The rise of cryptocurrency and offshore sportsbooks has introduced complexity into tax enforcement. Technically, even winnings from illegal or offshore sportsbooks are taxable. Crypto transactions must also be reported for capital gains if the cryptocurrency increases in value between deposit and withdrawal. The IRS has increased scrutiny of digital wallets and third-party payment platforms to combat tax evasion.

Conclusion

Sports betting in the USA is a heavily regulated and taxed activity at both federal and state levels. Bettors must be aware of their obligations to report all winnings and maintain records for potential deductions. While the tax burden can be substantial—especially in high-tax jurisdictions—it is an unavoidable aspect of legal sports wagering. Understanding these rules not only ensures compliance but can also optimize a bettor’s net returns through legal deductions and smart recordkeeping.