Betting Tax: How to Pay Taxes for Betting

For Beginner

Sports betting wins are exciting and financially rewarding. Betting tax is none of those things yet necessary.   

Sports betting wins are taxable and must be accounted for every year. According to the Internal Revenue Service. keep track of betting wins and losses and submit the allocated amount on your annual tax returns is the proper way to go.

The guide tackles several questions on sports betting taxes. Should you have problems addressing a particular tax issue, be sure to consult a tax professional or financial advisor to avoid possible mistakes and penalties.  

What You Need to Know About Betting Tax

1. You’ll Be Taxed Even on Online SportsBooks

Online sportsbooks like BetMGM, BetRivers, and PointsBet are all taxable. If you win more than $600 betting from either of these sites, they send a tax form to you and the IRS. Similarly, the organizers will send both you and the IRS a reporting form 1099-MISC if your net profit is $600 or more. If you earn your winnings via PayPal, the return form may be a 1099-K. 

2. Amount SportsBooks Withhold 

Usually, sportsbooks withhold 24 percent of sports betting wins to cater for taxes. It is the estimated amount which is indebted at the end of each year. This amount depends on your overall earnings, so you don’t owe for gambling proceedings. We expect bettors in the higher tax range to pay more, and the opposite is true.  

3. Freedom to Deduct Losses 

With itemized deductions, you can deduct your betting losses up to the amount of your sports gambling winnings. For example, if your betting sports winnings were $10,000 and 3,000 losses, itemized deductions can cover these losses.

Sadly, you won't be able to claim the excess if your losses are higher than your wins. Invalidating the example above, if you had $3,000 betting winnings and 10,000 losses, you could only deduct $3,000 of losses. The remaining $7,000 in losses will be forfeited.   

4. A Shift in College Seating Rights 

Initially, donors would make contributions to purchase tickets or seating rights at sporting events with a significant tax advantage. They considered eighty percent of the contribution a charitable deduction, while the remaining 20 percent represented the seating’s actual cost. 

Later on, the IRS discovered that most of the contributions were tailored to charity instead of ticket purchases. Unfortunately, that policy had to be eliminated at the beginning of 2018.   

As for the new rules, TurboTax will walk you through to find out whether you’re eligible for the tax deductions. If you have any tax issues, connect with a TurboTax Live CPA to get your concerns addressed. 


Do You Need to Pay Taxes for Sports Betting? 

Yes, all gambling is tax mandatory, including sports betting. That includes winnings from casino games, keno, lottery, poker, and pari-mutuel gambling.  

Depending on the form of betting, winnings that reach a specific threshold trigger an IRS alert. In sports gambling, a W-2G form is issued to you and the IRS upon attaining an income of $600 and above. Meanwhile, the payout is 300 times the amount bet.    

Whether you gambled at an online or physical sportsbook, sports betting winnings are taxable. Even if you win a tournament instead of cash, the IRS mandates you to submit the value of those prizes.  

How to Pay Your Betting Taxes 

W-2G Form: How to Use It

The W-2G form clearly outlines what to file on your tax returns. However, if you don’t receive a W-2G form, it’s up to you to file the correct amount of winnings. For efficiency, have records of your winnings to avoid potential errors. 

You should report gambling losses or ticket costs on Schedule A (itemized deductions) of the 1040 form. To legally deduct your losses, the IRS needs you to keep track of your gaming losses, as discussed later in this article.  

At no point will your gaming losses exceed your annual winnings, so you cannot deduct a higher amount on your tax return for a year. You cannot carry forward extra losses.   

Since the new tax law (Tax Cuts and Jobs Act), many taxpayers could not itemize their deductions, rendering Schedule A ineffective. Of course, each taxpayer will be in a position for minimal losses but may not cover gaming revenue.

Tax liability is another factor to consider when reporting your winnings. If your gaming income is represented in a W-2G form, you can have your taxes withheld during payment. This is recommended, especially if the winnings are weighty, to avoid penalties upon filing your return for the year. 

Suppose your winnings aren’t included in a W-2G, and you expect your net winnings for the year to be impactive from a tax perception. In that case, they may require you to start an estimated tax payment (1040 ES) during the year to evade a penalty on the following report.  

E-Filing Betting Taxes

This type of filing requires gamblers to report their wins and losses for each session. The IRS wants you to monitor each session and have a diary of both winnings and losses. Here are a few things to include in your diary: 

  • Number of wins and losses
  • Date and type of particular wager
  • Name and address of the gaming site

The IRS advises taxpayers to keep any supplemental documents such as credit card statements, bank statements, gaming tickets, racing schedules, or anything similar. If you're a casino enthusiast, getting a player's card is dead simple. The reason to consider this card is that your wins and losses are automatically tracked anytime you wager. Also, the casino delivers a report to you with all the tax information. 

Another thing to remember is that you can't file a net amount on your annual tax return. Separately, calculate both your winnings and report them accordingly on your tax form. Note that the net amount is money gained or lost during betting. 


How to Deal With IRS - Will I Get Caught for Not Paying Online Taxes? 

Yes, the IRS is aware of all sports betting winnings. When your sportsbook organizer sends you a W-2G form, it also notifies the IRS on the same. Even if you don't receive a W-2G form, the tax law still mandates that you file all your sports betting income. Failure to which you will attract penalties, interest, and increases in your tax bill.  

Income Betting Taxes for States 

Over the past year, Nevada and New Jersey generated $20 million from sports betting tax. These were the only states that offered widespread online betting in 2020. New Jersey raised three times more betting tax from online bets ($13.8 million) than it did from individual wagers (4.2 million). They collected another $2 million from both types of gambling as a special tax. 

Columbia, Iowa, Pennsylvania, Indiana, West Virginia, and Rhode Island have also approved widespread online gambling yet to run. As a result, politicians from the District of Pennsylvania, West Virginia, Columbia, and Rhode Island have set betting incredibly high despite state revenue policy. All thanks to the media intervention, the tax revenue has been lowered. However, betting taxes in states like Delaware, Pennsylvania, and New Jersey are meeting expectations. 

Penalties: How Much Would You Pay if You Didn't Report?

As mentioned before, the IRS requires you to report all your taxable revenue; otherwise, you're bound for penalties and interest on any unreported tax. 

The usual amount you pay by tax default is 0.5 percent of the unpaid return. This is a monthly rate and accumulates with time. Similarly, unpaid returns attract interest that accumulates daily from the due date of your return until you pay the penalties and interest you owe in total. 

However, if the IRS notices some exceptions in your tax return, such as gambling winnings, it may attract hefty penalties or, even worse, lead to your eviction for tax evasion. Some states will hold you responsible for the prosecution’s costs. 


Tips for Paying Betting Taxes

1. Are Losses Deductible?

Like sports betting winnings, losses are considered deductible only if you itemize your deductions and keep track of your winnings and losses. You should be able to provide supporting documents like statements, tickets, or tickets.  

Again, your losses cannot exceed your annual winnings, so additional losses are not deductible. Also, you won't have anything to claim if you didn't have losses throughout the year. Meanwhile, you can report your losses Schedule A of your tax return.  

2. Keep Your Records 

The importance of tracking all your gambling winnings and losses is to avoid overestimations. The IRS recommends punters keep logical records of all their gambling activities. Here, your documentation should include all W-2G forms issued throughout the year, betting tickets with dates, location, and amounts of wins and losses. You can also provide canceled cheques and receipts from sports betting organizers. More often, online sportsbooks will record all your bets, making them easy to access. Keeping track of in-person sportsbooks can be daunting yet necessary.  

3. Hire a Tax Professional

If you're unsure how to report certain aspects of your tax return, consult a tax professional for help. For first-time gamblers, tax preparation can be frustrating. However, a financial advisor can help clear up the confusion over IRS betting rules and save you money. Ask attorneys, business owners, or even your family and friends. Who knows? They might have someone in mind who is well-versed with sports betting taxes. 

Betting Taxes FAQ

  • How Do I Claim Us Gambling Tax Back From the IRS?

    There are two steps involved when claiming a refund. First, a U.S. ITIN (Taxpayer Identification Number) is a must-have. Second, you must report to a U.S. non-resident tax return by the end of the year.
  • How Much Money Can You Win Gambling Without Paying Taxes?

    Winning more than $5,000 with a payout of 300 times and more requires the payer to withhold 24 percent of your winnings as per IRS guidelines.
  • Does the IRS Accept Win/Loss Statements?

    Yes, the IRS will accept your losses if they have audited you, but ensure that you can prove the wins or losses. The best way to prove this is by keeping the records of your bettings, wins, and losses throughout the year.
  • How Much Do You Have to Win Sports Betting to Pay Taxes?

    You’ll have to win $600 or more and that the payout is 300 times what you staked to pay taxes, except winnings from slot machines, poker tournaments, bingo, keno, etc.
  • How Do Professional Gamblers File Taxes?

    Professional punters report their gambling income and the expenses they incur while gambling on schedule C. Also, note that schedule C is subject to federal income, state income, and self-employment tax.

Wrap Up 

Online sports betting is spreading globally, making it tax mandated. More people are now investing their time and resources in gambling to make the most out of it. And like any other business run online, taxes are becoming the norm. However, for efficiency, stick to the tax rules and report all your gaming winnings and losses.