As many states now support legal sports betting, residents in these states can bet on their favorite teams in person or online at a variety of online sportsbooks. If you’re lucky enough to take home more than you started with, you might be wondering how your sports betting earnings impact your taxes.
So, do you get taxed on sports betting earnings?
In the United States, gambling winnings, including sports betting earnings, are considered taxable income. If you win any money from betting on sports, you need to report that income to the IRS when filing your taxes.
Here’s what you need to know about paying taxes on sports betting earnings.
Are Sports Betting Earnings Taxable?
Yes, sports betting earnings are taxable in the United States. While the IRS does not specifically mention sports betting, it is considered gambling, and all income earned from gambling is taxable.
Depending on your state, you may have to pay both state and federal taxes on your sports betting earnings. When you use an online sportsbook, the platform keeps track of your profits and losses and reports them to the IRS. Bettors should also track their profits and losses independently so they can verify how much they owe in taxes at the end of the year.
Even if you bet on sports illegally, i.e., not through an approved platform, the IRS still requires you to report this income and pay taxes on it.
Are Daily Fantasy Sports Winnings Taxable?
Like sports betting earnings, winnings from Daily Fantasy Sports are also taxable. If you use an online platform like DraftKings or FanDuel for your fantasy league and you win more than $600, you will likely be asked to provide your Social Security number so the platform can report your earnings to the IRS.
Will I Receive a Tax Form for My Sports Betting Earnings?
If you earn more than $600 from sports betting online or at a sports betting facility, you should receive tax form W-2G, which shows your total winnings while accounting for taxes that have been automatically withheld.
In some cases, you may not receive a tax form at the end of the year. Whether or not you receive a tax form that shows your total winnings, you still need to report your earnings to the IRS and pay taxes on them. As such, it’s important to maintain your own profit and loss records in case you don’t receive the proper tax forms at the end of the year.
Understanding Automatic Withholdings
Generally speaking, sports betting facilities and online sportsbooks are required to withhold 24% of your winnings for tax purposes if you win more than $5,000. This is the amount the average bettor is expected to pay in taxes, but that doesn’t mean you’ll actually owe that much.
The actual amount you owe depends mostly on your annual income. Individuals in higher tax brackets will have to pay more in taxes on their sports betting earnings than those in lower tax brackets.
After filing your taxes, you may earn more or less than what was withheld by your sportsbook. If you expect to owe more than the 24% withheld by your sportsbook, you should consider setting aside some of your winnings to help cover your tax liability.
Can You Deduct Sports Betting Losses?
If you lose money from sports betting, you may be able to deduct your losses. This case-specific scenario doesn’t apply to everyone, though, so it’s always best to consult a tax professional to analyze your unique tax situation.
Keep in mind that while your winnings are reported to the IRS by your sportsbook, your losses may not be. As a result, if you plan to deduct any losses, you will have to provide your own documentation to verify them. Acceptable documentation may include wagering receipts, wagering tickets, canceled checks, credit records, and receipts from the gambling facility.
You should also keep detailed logs to help establish your losses. These logs should include information like dates, type of gambling activity, total winnings, total losses, the name and location of the gambling facility, and the names of the people you gambled with.
Tips for Reporting Sports Betting Income
To avoid fines and other penalties, it’s important to accurately track and report all your sports betting winnings and losses. While you should receive the forms you need from the facility or online sportsbook you used to place bets, it’s important to maintain your own records as well.
Here are a few tips to keep in mind for reporting sports betting income.
Report all your winnings
Whether you earn $10, $100, or $10,000, you need to report all your sports betting earnings to the IRS to avoid potential penalties. Your gambling winnings should be reported as “other income” on Schedule 1 (Form 1040).
If you win a prize other than money, like a car or vacation package, you should report its fair market value as income on your tax return.
Failing to report all your winnings, no matter how small, could result in fines or other consequences.
Look out for form W-2G
In most cases, you should receive a W-2G if you win more than $600 from sports betting or win at least 300 times the amount of your wager. Form W-2G lists your reportable winnings in Box 1.
To receive a W-2G, you’ll need to provide the payer with two forms of identification — one of which needs to be your photo ID. You’ll also need to provide your Social Security number or individual taxpayer identification number.
If your earnings come from an off-the-record wager, such as a bet with a friend or an office betting pool, you won’t receive a W-2G, but you should still report your winnings to the IRS, so be sure to track your betting profits and losses on your own to prepare for tax season.
Keep track of your profits and losses
For avid sports bettors, it’s important to maintain accurate profit and loss records so you can accurately report your winnings and deduct your losses come tax season.
This is particularly important if you use multiple sportsbooks and betting facilities to place bets, as you may not receive a Form W-2G from each payer, depending on how much you win from each sportsbook.
Not only should you record your profits and losses, but you should also record dates, facility and sportsbook names, types of bets, names of gambling partners, and any other relevant information.
Report winnings and losses separately
When filing your taxes, you must report your winnings and losses separately. You can’t subtract your losses from your winnings and report the difference as income.
For example, if you place three $200 bets and win $1,000 from one bet and nothing from the others, you must report the entire $1,000 as taxable income. You can’t subtract the $600 in losses from the $1,000 and only report $400 in winnings.
You can deduct the $600 separately if you itemize your deductions.
You may owe local taxes
Depending on the state you gambled in, you may owe both state and local taxes on top of federal taxes. Individuals should review their local laws and regulations to understand whether they owe local taxes.
Keep in mind that if you travel to another state to gamble, you may have to pay taxes on your winnings in that state, even if you don’t live there. You shouldn’t be taxed twice, though, as your home state should give you a tax credit for the taxes you pay to the state you placed the bet in.