March 25, 2022

Sports Betting and Gambling – How Taxes Come in to Play

Sports Betting and Gambling – How Taxes Come in to Play Tax & Business

Gambling has been increasing to an all-time high as more and more states permit it, (presently 30 states, including Washington D.C. permit gambling). In addition to gambling at casinos, opportunities like the Super Bowl and March Madness create many sports betting opportunities. If you’re fortunate to win, there are things you need to know about income tax on your winning wages. Any earned income from gambling, regardless of whether you do it as a business or a hobby, and whether it is done legally or illegally, must be reported.

Benefit to the Gambler as a Business

If you gamble as a business, meaning you earn a living doing it full-time, you are able to deduct losses (using Schedule C) against winnings.

Gambling as a Hobby

Most people gamble as a hobby. Losses, only to the extent of gambling winnings, may be deducted if you itemize using Schedule A (Form 1040), and have kept record of your winnings and losses. This includes having receipts, tickets, statements, or other records that show the amount of both your winnings and losses. You can claim your gambling losses up to the amount of winnings, as “Other Itemized Deductions.”

Taxing Winnings

According to the IRS, gambling winnings are fully taxable and you must report the income on your tax return. This includes winnings from lotteries, raffles, horse races, casinos, and additionally, the fair market value of prizes, such as cars and trips.

Most states have established regulations, typically imposing excise tax on licensed betting facilities. Many states with income tax, along with the federal government, tax gambling winnings. If they don’t already do so, legal betting facilities may report winnings to the IRS, while state tax authorities place tax withholdings on larger winnings.

Withholding/Reporting Requirements

  • Lotteries – 24% withholding on winnings greater than $5,000
  • Sweepstakes – 24% withholding on winnings greater than $5,000
  • Wagering Pools – 24% withholding on winnings greater than $5,000
  • Horse Track – withholding kicks in when winnings are 300 times the wager or more. Payer is required to file Form W-2G
  • Bingo – $1,200 threshold to file Form W-2G
  • Slot Machine – $1,200 threshold to file Form W-2G – a recent bipartisan bill may raise this to $5,000 in 2022
  • Keno Reporting – $1,500 or more to file Form W-2G
  • Poker Tournaments – $5,000 threshold to file Form W-2G
  • Any winnings is subject to a federal income-tax withholding requirement

The W-2G Forms are NOT required for winnings from table games such as blackjack, craps, baccarat and roulette, regardless of the amount. However, that does not mean you are exempt from reporting the winnings on your tax return.

Under the Thresholds

Even if you don’t win an amount that meets any of the above mentioned thresholds, you are still legally responsibly to report you winnings at tax time, regardless of the amount.

Fantasy Sports

Fantasy sports are considered to be a game of skill versus luck. As a game of skill, it is either a business or hobby, like sports betting above. However, if the taxpayer can show profits for three of the last five years, or playing is the primary source of income for the individual, it then can be considered a business or trade. This makes it easier to deduct related expenses against income if needed.