Super Bowl & Beyond: Navigating the Tax Landscape of Legal Sports Betting
The rise of legal sports betting across the U.S. Is undeniable. Since the Supreme Court’s 2018 decision allowing states to legalize the practice, 38 states and Washington, D.C. Have embraced it. With 75% of Americans supporting legal sports betting in their home state and 90% viewing it as acceptable entertainment, the industry is booming. Americans legally wagered an estimated $1.39 billion on Super Bowl LIX, and projections for the 2025 NFL season reached a record $30 billion through legal U.S. Sportsbooks.
What Winnings Are Taxable?
According to the IRS, gambling income encompasses more than just casino jackpots. It includes winnings from lotteries, raffles, horse races, and, crucially, sports betting. This applies to both cash winnings and the fair market value of any prizes won, such as cars or trips.
If your winnings meet certain thresholds, the payer – be it a casino, online sportsbook, or state lottery – is legally required to issue you an IRS Form W-2G. Even if you don’t receive a W-2G, the IRS expects you to report all gambling income as “other income” on Form 1040.
Reporting Requirements: It’s All “Other Income”
Tax attorney Asher Rubinstein, a partner at Gallet Dreyer & Berkey, clarifies that all gambling winnings are considered “other income” and must be reported on Form 1040, Schedule 1. This includes both cash and non-cash prizes.
The Friendly Wager: Does it Necessitate Reporting?
Even winnings from a seemingly casual sports bet among friends are technically reportable to the IRS. While practical enforcement might be difficult for smaller amounts, Rubinstein emphasizes the importance of understanding the rule.
Office Pools and Anonymous Crypto Payouts
The same reporting requirements apply to office pools. Yet, receiving winnings via anonymous digital assets like cryptocurrency doesn’t exempt you from taxes. Digital asset trading platforms are now reporting transactions to the IRS, issuing Form 1099-DA to clients. The IRS has successfully pursued information from exchanges like Kraken and Coinbase to identify unreported crypto income.
State Tax Variations
Tax implications vary by state. While Nevada and Florida don’t impose state income tax on gambling earnings, others do. Fresh York, for example, takes a 10.9% cut of lottery winnings. Your tax obligations depend on your state of residence.
Can You Deduct Your Losses?
You can itemize deductions to offset gambling losses, but there’s a catch. You can only deduct up to 90% of your losses against your winnings. These losses cannot be applied to any non-gambling income.
Pro Tip:
Keep meticulous records of all your gambling activity, including winnings, losses, dates, locations, and payers. This documentation is crucial if the IRS questions your returns.
Withholding and Tax Brackets
If your winnings exceed $5,000, the payer will typically withhold 24% for federal taxes. Rubinstein cautions that if you’re in a higher tax bracket – potentially 37% – you may owe even more, so it’s wise to set aside a portion of your winnings to cover potential tax liabilities.
FAQ: Sports Betting and Taxes
- Do I need to report small winnings? Yes, technically all winnings are reportable, even small ones.
- What records should I keep? Dates, amounts won and lost, locations, and the payer’s information.
- Can I deduct losses from previous years? No, losses can only be deducted in the same tax year as the winnings.
- What if I receive winnings in cryptocurrency? The winnings are still taxable and will be reported to the IRS by the exchange.
Did you understand? The IRS is increasingly focused on tracking digital asset transactions, making it harder to hide crypto-based gambling winnings.
Consulting with a tax professional is always advisable if you’re unsure about your tax obligations related to sports betting. Accurate reporting and proper planning can help you avoid penalties, and fines.
