Last updated on: August 28th, 2023

Sports Betting And Taxes – Paying Taxes On Your Sports Betting Winnings

Since legal sports betting is a relatively new industry, many are confused about the tax laws and regulations surrounding the industry. The most important thing to note is that sports betting winnings of any size are required to be claimed on income tax filings. If wondering how to pay taxes on sports betting, or if you are even required to, this page is perfect for you. Stick around for all of the necessary information surrounding sports betting taxes in the US.

  • Whether using state regulated or offshore, US players have to pay taxes on legal sports betting winnings.

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Claiming Your Winnings On Sports Betting

According to the IRS, it is required by law to claim your gambling winnings on your taxes. All income is taxable, this includes gambling winnings from international sports betting sites as well. You must claim any cash winnings, prizes, winnings from lotteries, raffles, as well as any casino winnings you earned throughout the year. The IRS is not concerned with where you got your winnings from, whether that be state-sanctioned gambling or offshore gambling sites, the government simply wants you to claim it. This is vital to avoid paying back-taxes in the future.

The percentage that the government takes from your legal sports betting winnings are dependent on a slew of circumstances. There is no set percentage that is taken from your sports betting winnings so you will not know how much you owe the government until after you file your taxes.

Filling Out Tax Form 1040 For Sports Betting

Because the establishment you won your winnings from may have sent a Form W-2G to the IRS on your behalf, it is important to be responsible and claim your winnings through sports betting taxes. When this form is submitted, they explain how much you won, on what kind of wager, and how much (if any) tax they withheld (which is usually 0). This situation only happens in a few situations such as large wins but it is still best to have your own information on hand.

On Tax Form 1040, you will total your winnings from sports betting on line 21. This line is listed as “other income” and simply write in your total money won. If you live in a state with state income tax, the process will slightly differ but be of similar circumstances on your state income tax filing.

Sports Betting States Exempt From Income Tax:

What About My Gambling Losses?

Even if you made money overall for the year, you should still claim your losses as well. This goes on your Schedule A form under line 28 titled “other miscellaneous deductions.” You only pay taxes on your net winnings, so proving that you lost a decent amount will greatly negate a majority of the taxes if this is the case. Keep in mind you must be able to provide a detailed record of your winnings and losses at both legal online sportsbooks and retail locations, but this information can help in the long run.

If you are claiming a yearly loss, your deductions cannot exceed your reported winnings. Stated in an example, if you won a $500 bet but lost $2,500 on the year, you can only claim $500 in losing wagers. In short, you cannot claim a loss for more than you won in gambling. Similarly, if you won nothing and lost $250, nothing can be deducted from your gambling efforts.

Penalties For Not Abiding By Sports Betting Tax Laws

Penalties for not abiding by sports betting tax laws are relatively severe. Any sports betting earnings that go beyond $600 are expected by the IRS to be reported by the gambler when they file their taxes. Any unpaid taxes will accrue interest; if a bettor cannot pay the taxes owed on time, the IRS will garnish the bettor’s wages. There is also a potential $100,000 fine and up to five years in prison for anyone found guilty of tax evasion. The IRS is also notoriously thorough, so it is not a risk worth taking to try to avoid paying sports betting income taxes.

Can I Keep My Winnings In An Offshore Account To Avoid Paying Taxes?

This is a bit of a legal gray area, and will vary depending on your sportsbook and state. However, it is best practice to simply declare your winnings.

Do Casinos Have To Report A Customer’s Winnings?

Casinos can withhold the taxes on your winnings if they so choose. If a bettor has won more than $5,000, it is common practice for the establishment to take out the necessary taxes. After that point, they will also send their customers a W-2G form to fill out during tax season.

Reporting Offshore Sportsbook Earnings

Even if you’ve won all of your money gambling with offshore sportsbooks, the IRS wants to know about it so that your sports betting taxes are accurate. Failure to report these funds on your tax returns could lead to future audits or inevitable payments that you thought you were free from. However, not every sports bettor needs to claim their sports betting winnings. If you’ve won less than $600, you’re in the clear as far as reporting them is concerned. You can choose to report them if you wish but you also will not be in any trouble for not reporting them.

Tips For Reporting Sports Betting On Tax Returns

If the yearly earnings from one platform is a sizable amount, the operator will send the gambler Form W3-G, the form for “Certain Gambling Winnings”. Using this form is completely fine if the bettor has received one. However, if they did not, their legal sports betting winnings should still be reported on Form 1099. From Daily Fantasy Sports (DFS), Leagues and Contests, or general sporting event wagers, anything that surpasses the $600 mark needs to be reported by the taxpayer. The process of learning how to pay taxes on sports betting is simple and very important for all US gamblers to know.