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May 14, 2018 Taxes also might be withheld on winnings less than $5,000 in certain situations, such as if the amount won is 300 times the original bet (i.e., a $600 win on a $2 bet). May 11, 2020 In my opinion the easiest bookie to place a bet with online is BetVictor (full BetVictor review here) who were formally known as Victor Chandler. They are rated in the Cheeky Punter betting reviews section with an A+ grade (the highest possible) and I’ve also classified them as one of the most safe betting sites online in a previous blog post.

This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®.

Betting on sports is part of the fun for many sports fans — even if their wagering hasn’t always been technically legal.

Until a May 2018 U.S. Supreme Court decision opened the door for every state to legalize sports betting, just four states allowed wagering on sports — Nevada, Delaware, Montana and Oregon. Legality, however, hasn’t stopped Americans from betting on sports. In fact, the American Gaming Association estimates that Americans spend more than $150 billion a year on illegal sports betting.

Since the Supreme Court’s ruling, New Jersey, Pennsylvania, West Virginia, Mississippi and Rhode Island have legalized sports betting. And other states are considering laws to permit wagering on sports.

But when you gamble on sports, it won’t matter to the IRS if your winnings came from a legal bet or from one that’s off the books. Your winnings are taxable income either way.

If you plan to do some wagering in a state that’s legalized sports betting, it’s important to understand how tax on your winnings will work. Let’s take a look at how the IRS treats gambling winnings of any kind.

Sports-betting winnings are taxable income

The big question for sports gamblers: Are your winnings taxable income? As we said above, the answer is yes.

“Gambling winnings are fully taxable and you must report the income on your tax return,” the IRS says. “Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”

Although sports betting isn’t one of the examples, it’s still covered by “gambling winnings.”

Whether sports betting is legal in the state where you place your bet doesn’t matter to the IRS. If you win, you have taxable income, which should be reported when you file your tax return.

These rules apply only to casual sports bettors. If you’re a pro — “in the trade or business of gambling,” as the IRS puts it — different rules apply.

How much tax you’ll owe depends on your personal tax situation and tax bracket.

You might also owe state income tax on any money you win from betting on sports, depending on which state you live in. For example, Nevada doesn’t have a state income tax. But Maryland does, and it considers winnings from gambling taxable income. If you win money betting on sports, check with your state to see if it taxes gambling winnings.

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Form W-2G: Evidence of your sports-betting win

So you win a couple thousand bucks betting on your favorite sports team. How will the IRS know if you don’t tell it? Well, whomever you won the money from — a casino, racetrack, etc. — is supposed to report your winnings to the IRS on Form W-2G. The form tells the IRS some important information, including …

• Contact information for the payer who awarded you the winnings, including phone number, address and federal tax identification number
• Your name, address and taxpayer identification number
• How much you won
• When you won it
• What kind of wager you made
• And how much, if any, federal and state income tax the payer withheld from your winnings

Generally, the payer has to report your winnings if …

• You won $1,200 or more from a bingo game or slot machine
• You raked in $1,500 or more at keno
• Your poker victory tops $5,000
• You won $600 or more and your winnings are at least 300 times the amount of your bet (bingo, slots, keno and poker are exceptions to this rule)
• The payor withheld federal income tax on the winnings

Penalties for not reporting sports-betting income

Of course, the IRS wants you to report all your taxable income, and if you don’t you could face penalties and interest on any tax you owed but didn’t pay.

Generally, the penalty for not paying income tax that you owe is 0.5% of the unpaid tax. That rate is assessed monthly until you pay the tax you owe. Unpaid tax and penalties typically accrue interest, too — 5% compounded daily from the due date of your tax return to the date when you actually pay in full the balance of any tax, penalties and interest you owe.

However, if you’re caught intentionally omitting income — like gambling winnings — from your tax return in order to avoid paying tax on that income, it could mean additional penalties. According to the tax code, trying to “evade or defeat” tax you owe on income you’re required to report could be a felony with fines of up to $100,000 for individuals or five years in prison. Plus, people convicted of tax evasion can be held responsible for the costs of prosecution.

Lose a sports bet? It might be deductible!

Just as sports-betting winnings are considered taxable income, losses may be tax-deductible if …

• You itemize your deductions
• You keep detailed records of your winnings and losses

“To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses,” the IRS says.

Any losses you deduct cannot exceed winnings that you report when you file your return. For example, if you reported winnings of $5,000, you could deduct losses only up to that amount. Additional losses would not be deductible. And if you lost $5,000 but didn’t win anything, you wouldn’t be able to deduct those losses at all.

If you’re eligible to deduct your sports-betting losses — or any other gambling losses — you’ll do so on Schedule A.

Bottom line

More than a quarter of Americans like to bet on football, 21% are interested in betting on baseball or basketball, and 20% would put some money down on a hockey game, according to Nielsen Sports. If you’re a fan of sports wagering, it’s important to understand that tax on sports betting is nothing new.

The IRS has always considered gambling winnings taxable income, and it expects you to report all your taxable income — even the money you win betting on sports.

If you’ll be reporting gambling winnings on your federal income tax return, or hoping to write off some gambling losses, be sure to keep detailed records of your wagers and losses.

Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.

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• Residents of the United States must report sports bet winnings to the federal government
• It is your responsibility to report earnings – sportsbooks will not do this for you
• Keep track of wins and losses to properly complete tax forms when the time comes

Filing income tax returns is never enjoyable, but we’ve all got to face the taxman. If you live in the United States (and you’ve netted some cash betting on sports online), you have to report your winnings to remain tax compliant. The last thing anyone wants is to be audited, or even worse: hit with a fine or criminal charge.

Doing your taxes is often just as confusing as it is boring. No matter where you turn, you’re likely to get a different answer. That’s why we’ve created this catch-all guide for everything you need to know about sports betting winnings when the tax season approaches.

Before we continue, we’re obliged to inform you that while we can point you in the right direction for filing your taxes on your sports betting winnings, we are not attorneys and can’t provide you with legal advice. If you have more questions or specific queries as to how to pay your taxes under the exact letter of the law, consult a CPA (Certified Professional Account) or a tax lawyer.

There Are No Tax Exemptions in the United States

Gambling is technically categorized as taxable income by the IRS. Winnings are not capital gains, which are subject to a different set of rules.

Unlike the UK or Canada, American bettors must pay taxes on any winnings that exceed $600 in a single year (or on a bet valued at 300 times the initial wager). Any and all winnings – from the lottery to bets placed at online sportsbooks – must be reported when you file taxes, even if they do not exceed $600.

Any and all winnings – from the lottery to bets placed at online sportsbooks – must be reported when you file taxes.

Please note that this $600 doesn’t refer to profit alone. This $600 applies to your total winnings when betting on sports, irrespective of sports betting losses. You can report your betting losses as deductions on your tax form, but they do not affect the $600 threshold for tax liability.

How to Accurately Report Your Wins and Losses

Note: This advice is directed at recreational sports bettors, not sharps. Sharps who rely on sports betting winnings as their primary source of income face a different process to comply with tax laws.

Reporting your sports betting winnings is easy if you’re just a regular casual sports bettor. There are two forms you’ll need to complete to report your gambling activity: Form 1040 and Schedule A.

On Tax Form 1040, simply total your sports betting winnings and put that figure in the “Other Income” spot. This is line 21 of form 1040. You can report your losses as an itemized deduction. These deductions are reported on your Schedule A form.

You will pay taxes on your net winnings (or your wins minus your losses). This means that if you’ve won $500 on sports, but lost $1000, you can deduct the $500 you’ve lost. As such, it is critical that you report your losses.

You might recall that as part of our strategy guide, we recommended that you carefully record both your wins and your losses.

In addition to tax purposes, this is extremely crucial for both improving your winning percentage and growing your bankroll. If you’ve recorded all your bets carefully (both the wins and losses) you shouldn’t have any issues properly filing your taxes.

What About Paying State Taxes?

If you live in Florida, Nevada, South Dakota, Texas, Washington, Wyoming, or Alaska, you don’t pay any state income taxes. In a similar vein, if you reside in either Tennessee or New Hampshire, you’re only obliged to pay state tax on dividends and capital gains from your investments, and nothing else.

You are not required to pay state taxes on sports bet winnings in Alaska, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming.

In these states, you aren’t required to pay state tax on sports betting winnings, but you still need to pay federal income tax to the Internal Revenue Service (IRS).

If you don’t reside in one of these states, you’ll need to report your sports betting winnings on your state tax return as well. We can’t give you details on how to pay your state tax but the process should be similar to paying federal tax. Once you get comfortable, completing your state tax form is rather straightforward.

I Live in the UK – Do I Need to Pay Taxes on Sports Bets?

In the UK, casual sports bettors are not required to report gambling wins on their taxes, nor are they taxed on their winnings. Instead, sports betting winnings are categorized as something called windfall profits, which are profits obtained thanks to unexpected, fortuitous events. Most types of windfall profits are not taxed in the UK.

There is a noticeable exception to this rule in the UK. If you are a professional sharp – and your primary income source is betting on sports – you’ll be able to code your losses (and even your travel expenses) as deductions, but you’ll need to pay tax on your overall profits.

Why Do We Have To Pay Tax On Sports Bets?

From those who own and operate sportsbooks to those who place sports wagers around the world, one thing drives all bettors: cold hard cash. An incredible amount of money is spent on gambling in the United States each year, and the government gets its piece.

Across the US, taxes from bettors’ winnings are an integral part of state economies. In many cases, these taxes are used to fund education and other public works projects.

What Do Sportsbooks Say About Paying Taxes on Your Winnings?

It’s important to understand that paying taxes on your winnings is your responsibility. The majority of the sportsbooks we review serve an international audience, and they don’t have the resources, authority, or desire to assist with their clients’ taxes.

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Sportsbooks use the correct language to ensure that they won’t incur any responsibility for customers who fail to complete their taxes accurately, honestly, and competently.

If I Don’t Withdraw From My Sportsbook, Can I Avoid Reporting Winnings?

We don’t recommend this course of action under any circumstances. You may have heard rumors that online sports betting winnings aren’t taxable if bettors keep them deposited at their online sportsbooks. This is a total myth. As the IRS itself says: “[citizens] are taxed on income that is available to you, regardless of whether or not it is in your possession.”

You may have heard rumors that online sport betting winnings aren’t taxable if bettors keep them deposited at their online sportsbooks. This is a total myth.

By the letter of the IRS’ Tax Law, it makes no difference whether your money is held at your online sportsbook or in your bank account. Additionally, it doesn’t matter if you’re technically placing bets offshore. As a US citizen, winnings that you come into possession of count as income.

One thing that we can say for sure is that win or lose, not many people come away from fighting with the IRS happy. Avoid messing with them at all costs!

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What Would Happen If I Didn’t Report My Winnings?

Though it’s unlikely that the IRS will send you behind bars, you technically risk jail time if you incorrectly fill out any portion of your tax form. There’s a stronger chance that they’ll hit you with a steep fine. You’re also likely to get audited, which is never any fun.

The consequences of filing a tax form incorrectly/fraudulently varies. The fine can be as high as $250,000, and –in the worst case scenario – the IRS can smack you with criminal charges and a maximum jail sentence of three years.

For even the smallest dollar amounts that go unreported, fines can go all the way up to $5,000 (plus 100% of the back taxes that you still owe).

In short, it’s not worth it to avoid accurately reporting your winnings.

It’s Easy to Pay Your Taxes Efficiently and Legally!

Paying your taxes isn’t nearly as much of a headache as you’d think. In fact, it’s extremely straightforward (as long as you’re keeping track of your wins and losses).

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In addition to helping you with tax information, we can help you improve your winning percentages, too. At SportsBettingDime.com, we cover everything from the fundamentals and basics of betting to more advanced strategies to use in your sports bets.