Sports betting is a fun pastime activity for amateur players as well as for pro bettors. Probably the best thing about gambling is when we get a win while placing bets, but losses can occur too, more often than we think.
When we do win while betting on sports, all winnings that we acquire are treated like an income that is subjected to taxes. Back in 2018, the IRS has decided to consider that every income we generate while wagering on sports must be reported to them.
We will cover a variety of topics regarding taxes on sports betting winnings. Punters will learn more about how sports betting winnings are taxable income, how to deduct our expenses, how to track our winnings and a plethora of useful facts!
- Is It Our Responsibility to Report Sports Betting Winnings as a Taxable Income?
- Sports Betting Tax Rates in the Various States in the US
- Tax Rates Across the World
- What If We Don’t Report Our Sports Betting Winnings?
- How to Prove Sports Betting Winnings?
- Keeping Gambling Records
- How Can We Itemize Our Sports Betting Losses?
- Professional vs. Amateur Gambling
- What About Fantasy League Winnings?
- What About Online Bookmakers?
- Consulting a Tax Professional
Is It Our Responsibility to Report Sports Betting Winnings as a Taxable Income?
Yes, it is, because everything that we win while we’re gambling, or doing sports betting, is a taxable income that we must report on our tax return. That is what the IRS requires bettors to do. We have to pay tax on winnings even if we’re not professional players. All the money that we win, for example, from betting on casino games, lotteries, horse races, and so on, is, in fact, taxable income. Also, gambling income is considered to be a certain prize that we’ve won while enjoying placing bets, like trips and cars as well.
It doesn’t matter if we’re gambling in a state where that is legal or not, we must pay taxes either way. This rule applies to casual gambling aficionados, while professional players must abide by different rules. That’s what the IRS says. A professional gambler is considered to be a person who places bets as a business or a trade. Regarding how much tax a gambler will pay has to do with their current tax situation and whether it has to pay state income tax or not.
When it comes to how much money do we have to win to start paying taxes on sports betting winnings, it starts around $600, and the winnings we’ve got are going to be taxed at a hefty 24% rate. Although it won’t be taxed, all winnings while betting on sports that amount to less than $600 have to be reported because that’s what the IRS requires from us.
Sports Betting Tax Rates in the Various States in the US
We will give bettors the opportunity to see tax rates in a number of states in the US. Before we do that, we must say that every gambling lover will have to pay taxes, regardless of whether we’ve made winnings while playing poker in an online casino or if we’ve made money while playing slot machines in a traditional, Vegas-like casino.
When it comes to the state level, are we obliged to pay taxes on sports betting winnings? That actually depends from state to state. Now, we will see what state betting tax gambling enthusiasts who like to do sports betting must pay in various states in the US.
Colorado Tax Rate
If we live in Colorado, and we’ve made some winnings while we were betting, a tax rate of 4.63% has to be paid. The local tax rate also has to be paid, and while the state rate is flat, the local rate isn’t. For instance, bettors who reside in Denver must pay an amount of $5.75 every month when they make some gambling winnings.
Florida Tax Rate
Every gambler who makes winnings from betting, and lives in the state of Florida, doesn’t have to pay state tax because there isn’t one. But, federal government tax has to be paid, no matter the state we live in.
Indiana Tax Rate
For the ones who live in Indiana and like to have fun while betting on sports, they have a tax rate of 3.23%, which they must pay. Each county in this state has its own local tax rate.
Connecticut Tax Rate
There are a lot of states in the US that have a flat tax rate, but that isn’t the case for the state of Connecticut. Here, bettors must pay a tax rate depending on the winnings they’ve made through the whole year. In the table below, we’ll see how this goes:
|$10000 or less||3%|
Pennsylvania Tax Rate
Regarding Pennsylvania, it is considered to be quite a big sports betting market. It has a flat tax rate of 3.07%, and all bettors have to pay it, so they wouldn’t owe anything to the IRS. The two biggest cities in the state of Pennsylvania, Philadelphia, and Pittsburgh have tax rates of 3.87% and 1.5%, respectively.
Tennessee Tax Rate
Tennessee has appeared on the betting market quite recently, and the great thing about betting in this state is that we can also legally gamble online. For many betting lovers, this is a gambling paradise because the tax rate is 0%. Nevertheless, federal tax has to be paid.
Rhode Island Tax Rate
The tax rate in the country of Rhode Island is determined by how much money we make annually. The following table contains the tax rates:
|Up to a maximum of $65,250||3.75%|
|Over the amount of $148,350||5.99%|
Wyoming Tax Rate
If it happens that we live in Wyoming, we would only have to pay federal tax because there is no state tax rate which is pretty fortunate for gambling aficionados.
Michigan Tax Rate
The residents of Michigan, who like to bet on sports, would have to pay the tax rate of 4.25%. Detroit has a city tax rate of 2.4% that bettors have to pay.
Illinois Tax Rate
This state has a flat tax rate of 4.95%, which means that it’s irrelevant how high our income is throughout the year because everyone pays the same rate.
Tax Rates Across the World
We have good news from players across Europe because most of the countries have no state tax rate, so gamblers can take all the money that they’ve won while betting.
If you live in Germany, and you like to place bets on sports events, you won’t have to pay tax.
UK players can collect all their winnings from betting, and they don’t have to pay tax because there isn’t a tax rate for bettors in this country.
Irish punters only have to pay a 1% tax rate on their winnings when they play in a traditional casino. Meanwhile, if we play in an online casino and we live in Ireland, there is no tax rate.
Bettors from Canada aren’t required to pay any taxes on betting and their gambling winnings.
Unfortunately, gambling fans from India will have to pay a hefty tax rate of 31.2% on all of their gambling winnings.
Punters from New Zealand can keep all gambling winnings to themselves because there are no sports betting tax rates.
Bettors who reside in South Africa don’t have to pay a betting tax rate.
What If We Don’t Report Our Sports Betting Winnings?
If we don’t report our winnings from betting on sports events, we could face severe consequences and get penalties too. The IRS is very strict when it comes to not following the rules regarding taxable income such as money won from gambling. If we pay our tax late, then we will get a 0.5% rate on top of the tax that we’ve owed to pay for our sports betting winnings. In the case when we don’t pay our tax for a whole month or a part of it, a 25% rate will be added to the initial tax that we owe already. If we try to evade tax payment, we can get a hefty fine of $100,000. The worst-case scenario is that we could get imprisoned for up to a maximum of five years, and costs of prosecution could be added for evading tax payment as well. Therefore, we recommend that all bettors pay their tax, and on time too.
How to Prove Sports Betting Winnings?
Additionally, let’s say that you’ve made money betting on one of the popular sports betting sites. How are we going to prove to the IRS that we’ve won some money while we were having fun by placing bets on sports? It goes like this.
The establishment where we’ve won the bets, like a casino, for example, must report our winnings to the IRS with the help of a form, a W-2G form to be exact. In the next list, we will see much information that the IRS must get from the place where we’ve won our bets:
- When did we win and the amount of money we won
- Types of bets we’ve made
- There must be the contact info for the one who paid us, like federal tax ID number, address, etc.
- Then, our first and last name, place of residence, and taxpayer ID number.
In the following situations, the one who paid must report our winnings:
- We’ve won $1200 or more while we were enjoying casino games such as slots or bingo
- Our winnings from playing poker have been more than $5000
- Our winnings are $600 or even more, and everything we’ve won has to be a minimum of 300 times our initial stake. This rule doesn’t apply to casino games such as poker, keno, slot machines, and so on.
- We’ve won $1500 or more while playing keno
Keeping Gambling Records
Keeping our sports betting records could be challenging, but it’s required from us to do, and the IRS suggests this as well. We can either start to track our gambling activity on our computer or a mobile device like a laptop or a mobile phone. Also, we could just take a paper and start writing our gambling record there. This is helpful to us when the time comes to pay our taxes on sports betting winnings.
Here are some suggestions as to what should we have in our gambling records:
- The date as well as the type of bet we’ve made at a certain casino, bookmaker, or a racetrack
- The location of every gambling establishment where we placed bets on sports events
- How much money we’ve won while gambling and how much we lost
- Items with which you can prove your gambling activities like the before-mentioned form W-2G, a statement of our sports betting winnings, credit card record, and so on.
Also, here are some suggestions that will help us keep betting records on specific events and casino games too:
- Any kind of racing – how many races we’ve placed bets on, the money we’ve won, lost, and how much money did we wager, the tickets we failed to redeem, etc.
- Slots – the number of the specific machine we played as well as the particular time and the amount of money we’ve won while playing a certain slot machine
- Casino table games (roulette, blackjack) – the precise number of the playing table, how much money we wagered, won, and lost, credit card data.
- Keno – keno ticket copies should be kept.
- Bingo – the exact number of playing bingo games, the amount of money won on tickets as well as receipts which we’ve got from the casino we played at
- Lotteries – how many tickets we bought, when did we win, lose, and how many tickets we’ve failed to redeem.
How Can We Itemize Our Sports Betting Losses?
By itemizing our deductions, we have the possibility of deducting the losses we had while gambling on sports matches. We can only deduct our losses to an amount that is equal to the money we got with gambling winnings. Here’s an example to make things simpler. Let’s say that we’ve won a sum of $20,000, but we’ve lost $10,000 while gambling. We can deduct the loss of $10,000 if we go and itemize our tax deductions.
On the other hand, if we lost more money than we’ve won, we couldn’t get the opportunity to get the excess money, which is really unfortunate. For instance, we won an amount of $10,000 while we were placing bets, but we lost a greater sum, let’s say $20,000.
Now, we only have the chance of deducting $10,000 of the betting losses, which is not that great. The other $10,000 of the losses we’ve got while betting are going to be lost for eternity.
We’ve mentioned earlier that our gambling winnings have to go on the form W2-G. However, that is not the case when we talk about losses. We would have to get some other form of proof like receipts or checks.
Professional vs. Amateur Gambling
There are people whose profession is gambling, while there are people who think of themselves as casual bettors. Today, most gambling aficionados bet for fun and gamble from time to time. All bettors who only do this for entertainment should itemize their deductions with the help of Schedule A.
On the other hand, gamblers who are betting professionally are treated as either a trade or a business. The income they get with gambling is, in fact, a normal income that is taxed at a regular tax rate.
Pro bettors have the responsibility of reporting all the money they’ve earned and spent on Schedule C. Unfortunately when it comes to gambling as a profession, bettors can only deduct their losses up to a maximum amount of how much they’ve won while gambling.
What About Fantasy League Winnings?
In the case of winning a certain Fantasy League, everything we’ve won is considered to be taxable income, so there’s no difference to income gained while gambling. It’s all taxed. For fantasy league winnings, we would have to fill the 1099-MISC form and not the W-2G, which was the form intended for gambling winnings. In some states, fantasy league sports are considered to require skill and not luck, which is the case when it comes to gambling in general.
What About Online Bookmakers?
If we tested our luck on online bookmaker websites such as 22Bet, Spin Casino, and Casino.com and made winnings, that’s also treated as income, and we have to pay tax for it. If we’ve generated at least $600 or even more, those online sports bookmakers are going to send a form to us as well as to the IRS.
Consulting a Tax Professional
Indeed, paying betting taxes on sports betting winnings is not quite entertaining, but it is required of us. In our guide about sports betting taxes, we gave enough information on how paying taxes on sports betting winnings works, but if we find ourselves in a certain situation, and we’re not sure how to pay our betting taxes, we should consult a tax professional.
Bettors, both casual and professional, have to remember that paying taxes on sports betting winnings and gambling in general, is mandatory. We wish punters all the luck in their gambling endeavors!