Should You Pay Taxes on Sports Betting Winnings?

Sports betting is a fun pastime activity for amateur and pro bettors. The best thing about betting is getting a win, but losses can occur more often than we think.

When we do win while betting on sports, all winnings are treated as an income and it is subjected to taxes. Back in 2018, the IRS decided 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?

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.

How much tax a gambler will pay depends on their current tax situation and whether it has to pay state income tax or not.

You’ll be taxed on winnings starting around $600, and at a hefty 24% rate.

All winnings less than $600 will not be taxed but must be reported to the IRS.

Sports Betting Tax Rates in the Various States in the US

Every gambler will have to pay taxes, regardless of whether theymade winnings while playing poker in an online casino or if you’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 differs from state to state. Now, we will see how much tax sports bettors must pay in various states in the US.

Colorado Tax Rate

If you live in Colorado, and you’ve made some winnings while  betting, a tax rate of 4.63% has to be paid. You must also pay the local tax rate, 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 you live in.

Indiana Tax Rate

Those who live in Indiana and like to have fun while betting on sports must pay a tax rate of 3.23%. 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:

Pennsylvania Tax Rate

Pennsylvania 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:

Wyoming Tax Rate

If you live in Wyoming, you 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

Europe

We have good news for 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.

Germany

If you live in Germany, and you like to place bets on sports events, you won’t have to pay tax.

UK

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.

Ireland

Irish punters only have to pay a 1% tax rate on their winnings when they play in a traditional casino. Meanwhile, if you play in an online casino from Ireland, there is no tax rate.

Canada

Bettors from Canada aren’t required to pay any taxes on betting and their gambling winnings.

India

Unfortunately, gambling fans from India will have to pay a hefty tax rate of 31.2% on all of their gambling winnings.

New Zealand

Punters from New Zealand can keep all gambling winnings to themselves because there are no sports betting tax rates.

South Africa

Bettors who reside in South Africa don’t have to pay a betting tax rate.

What If You Don’t Report Your Sports Betting Winnings?

If you don’t report your winnings from betting on sports events, you 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 you pay our tax late, then you will get a 0.5% rate on top of the tax that you’ve oyoud to pay for our sports betting winnings. In the case when you 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 you oyou already. If you try to evade tax payment, you can get a hefty fine of $100,000. The worst-case scenario is that you could get imprisoned for up to a maximum of five years, and costs of prosecution could be added for evading tax payment as youll. Therefore, you recommend that all bettors pay their tax, and on time too.

How to Prove Sports Betting Winnings?

Let’s say that you’ve made money betting on one of the popular sports betting and you’re wondering how to prove to the IRS that we’ve won some money, here’s how it goes.

The establishment where you’ve won the bets, like a casino, for example, must report your 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:

1. When you won and the amount of money you won.
2. Types of bets you’ve made.
3. There must be the contact info for the one who paid you, like federal tax ID number, address, etc.
4. Your first and last name, place of residence, and taxpayer ID number.

In the following situations, the one who paid must report your winnings:

1. You’ve won $1200 or more while you were enjoying casino games such as slots or bingo.
2. Your winnings from playing poker have been more than $5000.
3. Your winnings are $600 or even more, and everything you’ve won has to be a minimum of 300 times your initial stake. This rule doesn’t apply to casino games such as poker, keno, slot machines, and so on.
4. You’ve won $1500 or more while playing keno.

Keeping Gambling Records

Keeping your sports betting records could be challenging, but it’s required to do so. You can either start to track your gambling activity on your computer or a mobile device like a laptop or a mobile phone. Also, you could just take a paper and start writing your gambling record there. This is helpful to you when the time comes to pay your taxes on sports betting winnings.

Here are some suggestions as to what you should have in your gambling records:

1. The date as well as the type of bet you’ve made at a certain casino, bookmaker, or a racetrack.
2. The location of every gambling establishment where you placed bets on sports events.
3. How much money you’ve won while gambling and how much you lost.
4. Items with which you can prove your gambling activities like the before-mentioned form W-2G, a statement of your sports betting winnings, credit card record, and so on.

Also, here are some suggestions that will help you keep betting records on specific events and casino games too:

1. Any kind of racing – how many races you’ve placed bets on, the money you’ve won, lost, and how much money you wagered, the tickets you failed to redeem, etc.
2. Slots – the number of the specific machine you played as well as the particular time and the amount of money you’ve won while playing a certain slot machine
3. Casino table games (roulette, blackjack) – the precise number of the playing table, how much money you wagered, won, and lost, credit card data.
4. Keno – keno ticket copies should be kept.
5. Bingo – the exact number of playing bingo games, the amount of money won on tickets as well as receipts which you’ve got from the casino you played at.
6. Lotteries – how many tickets you bought, when you won or lost, and how many tickets you’ve failed to redeem.

How Can You Itemize Your Sports Betting Losses?

By itemizing your deductions, you have the possibility of deducting the losses you had while gambling on sports matches. You can only deduct your losses to an amount that is equal to the money you got with gambling winnings.

Here’s an example to make things simpler. Let’s say that you’ve won a sum of $20,000, but you’ve lost $10,000 while gambling.  We can deduct the loss of $10,000 if we go and itemize your tax deductions.

On the other hand, if you lost more money than you’ve won, you will not get the opportunity to get the excess money, which is really unfortunate. For instance, you won an amount of $10,000, but youlost a greater sum, let’s say $20,000.

Now, you only have the chance of deducting $10,000 of the betting losses, which is not that great. The other $10,000 of the losses are going to be lost for eternity.

We’ve mentioned earlier that your gambling winnings have to go on the form W2-G. However, that is not the case when we talk about losses. You 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 you’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, you 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 you tested your luck on online bookmaker websites such as 22Bet, Spin Casino, and Casino.com and made winnings, that’s also treated as income, and you have to pay tax for it. If you’ve generated at least $600 or even more, those online sports bookmakers are going to send a form to you 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 have given enough information on how paying taxes on sports betting winnings works, but if you’renot still confused about how to pay your betting taxes, you should consult a tax professional. 

Conclusion

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!