How sports betting taxes work and what you might owe
Sports betting has seen a surge in popularity in the United States since it was legalized in 2018. The U.S. Supreme Court struck down a 1992 federal ban, allowing states to individually determine the legality of gambling within their borders. Currently, 40 states and the District of Columbia have legalized sports betting, with 34 permitting online sports betting, according to the American Gaming Association.
The legalization of sports betting has significant tax implications for millions of gamblers who are also taxpayers. According to tax experts, winnings from sports betting are considered taxable income. If your winnings total $600 or more and are at least 300 times the amount wagered, a payer such as a casino is required to issue you a Form W-2G for tax reporting purposes.
When it comes to reporting sports betting winnings, individuals must report total gambling income as “Other income: gambling” on line 8b of Schedule 1, 1040. Professional gamblers, who engage in sports betting primarily for profit, can use Form 1040, Schedule C to report profit or loss from their business activities. Self-employed filers, including professional gamblers, must pay self-employment tax, which is 15.3 percent.
The tax rate for sports betting winnings depends on the total amount won and the amount wagered. Taxpayers whose winnings exceed $5,000 and 300 times the amount wagered may have 24% of their total payout withheld by the payer. However, this withholding does not guarantee that the required amount of tax has been paid. Tax rates range from 10% to 37% based on total income, resulting in either a refund or additional payment due at tax time.
When reporting gambling income on federal tax returns, it is important to factor in losses. The IRS requires total wins and losses to be calculated by the day they were made, with each day considered an individual session. Only itemized deductions can offset gambling losses against winnings, with nine states disallowing this deduction for state income tax purposes.
Professional gamblers can only offset their total winnings with their losses, with no tax refund for losses exceeding winnings. To minimize sports betting taxes, it is crucial to keep detailed records of all wagers, receipts, and tickets, as well as evidence of winnings and losses. This documentation can be invaluable in the event of a tax audit.
In conclusion, while sports betting has become more accessible in the US, taxpayers must be aware of the tax implications of their winnings. By understanding the reporting requirements and keeping accurate records, individuals can ensure they are compliant with tax laws and maximize deductions where possible.
