One of the big selling points for legalizing sports betting has been the added tax revenue it can provide to a state or country, which is mostly paid, of course, by operators such as DraftKings and FanDuel.
What’s less talked about is what the bettors themselves owe in tax — and that silence may not be accidental — but there are some obligations there.
Yes, the growth of regulated sports betting in the United States is notable enough that the U.S. Census Bureau recently added event wagering to the list of state and local tax revenue sources that it tracks.
For example, in the third quarter of 2023, sports betting produced state-level sales tax and gross receipts of almost $506 million, an increase of 20.5% from a year earlier, the agency reported.
In some states, New York especially, those increased tax payments have been celebrated, as they are helping to fund a host of government priorities, such as education and problem gambling help. But that money is chiefly being forked over by sportsbook operators; what about sports bettors?
Here are the January mobile sports betting numbers from the New York State Gaming Commission:
— Geoff Zochodne (@GeoffZochodne) February 4, 2022
-~$1.6B in handle
-~$113M in revenue
-Revenue taxed at 51%, so ~$57.6 in taxes owing
-Hold of about seven percent
-Accomplished with just 6 of 9 authorized bookmakers taking bets pic.twitter.com/dpxL2Abhn7
With most personal income tax returns in the U.S. due Monday, Covers decided to provide some last-minute intel for last-minute filers. It may not be the most exhilarating part of sports betting, but if you’re going to wager, it’s an important one, and something you may not realize given sports betting has only been legalized relatively recently in many states since 2018.
Alison Flores, a manager at the Tax Institute at H&R Block, noted both sports bettors and fantasy players may be surprised when they receive a tax form from their bookmaker or fantasy site.
“That's kind of when it sets in and we start getting questions,” Flores said. “That's been increasing.”
Note: This is not a definitive guide to filing your taxes and shouldn’t be viewed as such. If you’ve got questions or you’re unsure about what you’re doing, you should consult a professional. That’s especially true given the filing deadline is so close.
“I think especially if you're new to any kind of income, or deductions, working with a professional helps to get off to a great start and to help you take advantage of any deductions or credits you can claim,” Flores said. “What I actually recommend in this particular situation is to connect with a tax professional. Go ahead and make an appointment with them and then work with them to file an extension.”
Wait, so I have to pay tax on my sports betting winnings?
Yes. But don’t take it from me, take it from the Internal Revenue Service: “Gambling winnings are fully taxable and you must report the income on your tax return.”
Per the IRS, if you won more than $600 and at least 300 times the amount of your wager, sportsbooks are typically supposed to issue you “Form W-2G, Certain Gambling Winnings.” Those winnings are generally reported under "Other income" on Form 1040.
Furthermore, if you won $5,000 or more (congrats, BTW), the operator could withhold up to 24% of those profits for tax purposes, according to H&R Block, a tax prep company. That would show up in Box 4 of Form W-2G.
Flores said the relatively new nature of legal sports betting in the U.S. means people are making mistakes when filing their tax returns, such as by not identifying income. For example, a bettor who uses multiple online sportsbooks may report winnings earned with one operator but not with another.
Where do I find this stuff?
Operators should make it relatively easy for you to find your tax information. DraftKings, for instance, says customers should have received their tax forms no later than Jan. 31.
OK, so what do I owe?
That depends on how much you made last year and what tax bracket you wound up in, which could range from 10% to 37% of your income, H&R Block notes. There may be differences on a state-to-state basis as well, Flores noted, such as some states that don’t tax income (like Florida and Texas) or do not allow you to deduct gambling losses.
“So if you're in a state like that, that can be tricky, because you may have $100,000 in gambling wins and $100,000 and gambling losses,” Flores said. “If you can't use that deduction to offset the losses, you're just showing income. You'll have a tax liability when you didn't actually net money. So that can be tough.”
So what if I didn’t win?
It happens. In fact, it’s going to happen if you’re betting on sports, and especially if you’re a devotee of the dark arts of same-game parlaying. Fortunately, you may be able to deduct those losses from your taxable income.
“You can deduct gambling losses as an itemized deduction, but you cannot deduct more than your winnings,” Form W-2G notes. “Keep an accurate record of your winnings and losses, and be able to prove those amounts with receipts, tickets, statements, or similar items that you have saved.”
In addition to keeping records, you can only deduct gambling losses if you “itemize” those deductions in Schedule A of Form 1040, the IRS notes.
“So, if you won $2,000 but lost $5,000, your itemized deduction is limited to $2,000,” TurboTax explains. “You can’t use the remaining $3,000 to reduce your other taxable income. You have to claim $2,000 in income on your Form 1040 and then separately claim $2,000 as an itemized deduction.”
Itemized deductions include gambling losses but also things like mortgage interest and real estate taxes.
“Not everyone itemizes today,” Flores said. “A lot of people claim the standard deduction. So if you don't have a lot of losses or a combination of things, you may not end up benefiting from a gambling loss deduction.”
I’m Canadian!
OK, OK, keep it down there, guy. In Canada, where the tax filing deadline isn’t until the end of this month, gambling winnings are generally not taxable. The possible exception is if those winnings are considered business income, i.e., if you’re a professional gambler who makes a living off of sports betting or otherwise.
It’s also worth noting that if you’re a Canadian who traveled to the U.S. and dabbled in some gambling down there, you may owe U.S. taxes, although the special relationship between Canada and the U.S. means you can deduct losses as well. The sportsbook or casino may also withhold tax for you, but it’s something to be aware of.
“If you are Canadian and you just traveled here on vacation and gamble, your gambling winnings are taxable in the United States,” Flores said. “Some people just aren't aware of that rule, but they're subject to tax at a 30% tax rate.”
