Did you know that 118 million people bet on sports each year?
Sports betting gives savvy gamblers an opportunity to collect cash while their favorite players collect trophies.
You don’t have to drop by a casino or a race track to bet on sports, either. Gamblers can take home winnings after fantasy football games, office parties, and Saturday night poker.
That cash isn’t necessarily free and easy, however. Gambling winnings, just like any other income, are taxed in the United States.
If you raked in gold last year for sports betting, keep reading. In this post, we discuss everything you need to know about paying tax on sports betting!
Sports betting is a form of gambling. It allows sports fans to bet on who they think will win a tournament, game, or race.
Naturally, gamblers put down cash when placing these wagers. These wagers can vary from a few pennies to thousands of dollars.
“Winners” cart home cash, often a percentage or total of all bets placed on a specific team, player, or participant.
You don’t have to visit a racetrack or basketball court to engage in sports betting. A lot of bets occur informally. For example, you and your friends may bet on March Madness results from the comfort of your own living room!
This is because sports betting hasn’t always been technically legal in the U.S. It’s been around for centuries, but it hasn’t enjoyed the hazy legality that gambling institutions like casinos have enjoyed for quite some time.
In fact, until May 2018, only four states in America permitted sports gambling: Montana, Delaware, Nevada, and Oregon.
The Supreme Court gave states the right to legalize sports betting in 2018. Since then, quite a few have come on board. Sports betting is now legal in West Virginia, Mississippi, New Jersey, Pennsylvania, and Rhode Island.
Nonetheless, while sports betting is illegal in a large portion of the U.S., this doesn’t get you off the hook of paying taxes. Whether or not your state permits betting, you’re still eligible to pay taxes on any income acquired through gambling means.
If you are living in a state where it’s legal to bet on sports, it’s especially important to follow tax rules when reporting winnings.
You’re a regular at the racetrack and a natural at predicting World Open results. So how much tax do you have to pay in consequence?
The IRS classifies all gambling winnings as taxable incomewhether or not these winnings were earned legally. Such income can come from raffles, lotteries, horse races, and casinos.
The IRS doesn’t mention sports betting on its website, but these do count as gambling winnings.
Any cash winnings or prizes (such as vehicles or vacations) also count, assessed at their “fair market value.”
If you’ve earned your winnings at a gambling facility, that facility will actually issue you a tax form for those winnings at the start of tax season. However, this only happens if you win $600 or more (or if you’ve won at least 300 times at that facility).
You’ll also receive said formForm W2-Gif you cart home at least $1,200 from a slot machine and $1,500 from keno.
And if you really bring home the bacon, earning at least $5,000 for sports betting, this definitely goes on your tax record.
If you receive cash from a sports betting facility, you will receive a total that already has taxes taken out of it. Facilities are required to withhold 24% of your earnings for federal withholding tax.
You will see this spelled out in your W2-G when tax time rolls around.
However, if you receive off-the-record winnings, these are still taxable. You will have to report them as other income when filing your taxes, and these will be taxed along with the rest of your income according to your filing status and tax bracket.
You may also have to pay state income tax on your sports betting cash, depending on where you live.
It may be possible to report any sports betting losses. So, if you had a bad night last week at the stadium, don’t worry.
Sports betting losses are tax-deductible, but under very specific conditions. The most important of these conditions is that you can’t claim losses that total more than your gains.
So, if you lost $5,000 on sports betting last year but took home $7,000 in the end, you’d be able to deduct all of those losses. If you lost $15,000 on sports betting but took home $5,000, you would only be able to deduct $5,000 of your lost bets.
Learn more about claiming gambling losses in this post.
You may be tempted to withhold your sports betting cash from Uncle Sam, especially if you won it informally (i.e., outside of a gambling facility).
However, failing to report taxable income on your tax return (via Form 1040) can result in severe penalties. Some of these include serious jail time, on top of relevant fees.
You may also be subject to an IRS audit at any time.
For this reason, we strongly recommend keeping a diary or journal of your sports betting wins and losses.
In your diary, you should be recording the type of gambling, the date, gains and losses, location, and people you’ve bet with. You should also hold onto any relevant forms or receipts detailing cash transactions.
Claiming your gambling losses can also help you minimize how much of your sports betting earnings you give back to Uncle Sam.
Read the rest of our tips on reporting gambling income and losses here.
Don’t let the idea of paying taxes keep you from putting down some cash at your next hockey game. Avid sports betters are still entitled to fun, even if the IRS wants a piece of the pie!
Any income you earn from sports bettingand other forms of gamblingis subject to tax. When you pay tax on sports betting, you will pay according to your tax bracket and filing status.
Do you owe the IRS money as a result of late taxes or misreporting your sports betting income? Don’t panic. Click here for some easy tips!