If you want a quick, nutshell-type response to this question then – yes.
Gambling winnings are taxable income.
Most of you won’t be surprised to learn that the situation is rather more complex than that.
This information only pertains to how gambling taxes work for federal income tax purposes. Each individual state also has its own internal taxation system.
They’re taxing me twice on the same money?
The onus is entirely on you to report and pay tax on the money you win. It seems that casinos and sportsbooks will inform the IRS if you accumulate wins of over $600 in a tax year.
Here at The Jump Hub, we are decent, law-abiding citizens and proud taxpayers. Any advice or information given here is intended purely for educational purposes. It is not an endorsement of any kind to break the law.
We believe in a society where those that can afford to should help out those with limited means, who cannot otherwise help themselves.
In that spirit, we would never recommend that you avoid paying your way in life.
We might disagree with the way government agencies misappropriate and misuse the money they take from us taxpayers but that is another story…
Legalized sports betting
The beauty of having the option for legalized gambling in so many states is that you are protected.
But, just like with any racket, protection comes at a cost.
If you win any money through gambling then you should report it on your federal income tax return.
Thankfully, you can deduct certain expenses and losses.
But, whether it’s a $10 scratch card or a $10,000 spin of a roulette wheel in Vegas, you’re legally obliged to report all gambling income.
AND NOBODY IS SAYING THAT THE FEDERAL GOVERNMENT SHOULDN’T TAKE THEIR CUT
If people have disposable income to risk in this way then they can afford to pay their way right? Why should sports betting winnings be exempt?
The rules on what you need to pay depend on certain factors:
Whether you’re a casual or professional gambler
The marginal income tax bracket you find yourself in
You are going to need to keep accurate records of your gambling activity. Bizarrely, this is actually quite a positive step.
It will either show you that you are making taxable income in sports betting.
OR THAT YOU SUCK AT IT AND ARE LOSING MONEY HAND-OVER-FIST…
Whatever way you choose to do it (the IRS has some advice on how best to keep gambling records) you must keep impeccable records of your winnings and losses from sports betting and other forms of gambling.
It doesn’t matter whether you’re a casual or professional gambler. There is a requirement to report all of your gambling winnings.
If you’re going to claim deductions then you risk having them disallowed without acceptable evidence.
Keep a file where you input all your activity. A simple spreadsheet will do nicely.
IN PARTICULAR, YOU NEED TO KEEP RECORDS OF THE FOLLOWING INFORMATION:
The date and type of your specific wager
The name and address of the gambling establishment
The names of other persons present with you at the gambling establishment
The amount you won or lost
The IRS also has record-keeping suggestions for certain accepted gambling activities.
You need to do some research if your preferred method isn’t here. It serves as a good illustration of what you are likely to require:
Bingo – Number of games played, cost of tickets purchased, amounts collected on winning tickets with receipts.
Keno – Copies of validated keno tickets. Copies of casino credit records/casino check cashing records
Lotteries – A record of ticket purchases, dates, winnings, losses, unredeemed tickets, payment slips, and winnings statements.
Racing (horses, dogs, etc) – Record of races, amounts wagered, amounts collected on winning tickets, amounts lost on losing tickets, unredeemed tickets, and payment records from the racetrack.
Slot machines – Machine number and all winnings by date and time the machine was played.
Table games (blackjack, poker, craps, roulette, etc) – Table number you were playing at. Casino credit card data that indicates whether the credit was issued in the pit or at the cashier’s cage.
ALL GOOD FUN RIGHT?
GAMBLING INCOME REPORTING AND WITHHOLDING
A gambling establishment may report your winnings and withhold federal taxes at the point of release. They will issue you with a form (IRS Form W-2G) and you must then include this information as part of your tax return.
When you submit your tax return, it may be that you owe less in taxes. You will receive the difference as a refund in due course.
IF YOU OWE MORE TAXES ON TOP THEN YOU CAN ALSO DEAL WITH THAT LATER
According to the law, gambling institutions must issue you with this form if you receive:
$1,200 or more in gambling winnings from bingo or slot machines
$1,500 or more in winnings (reduced by the wager) for keno
More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament
$600 or more in gambling winnings (except winnings from bingo, keno, slot machines and poker tournaments) and the payout is at least 300 times the amount of the wager
Any other gambling winnings subject to federal income tax withholding
We’re reaching the extent of our understanding of the situation at this point. Suffice it to say that, in certain cases, federal income taxes will be withheld from your winnings. The withholding rules seem to differ depending on the type of gambling and you will need to research that yourself.
The standard withholding rate is 24%
ASSESS YOUR OVERALL PERFORMANCE
Get an exact figure of how much money you have lost gambling each year.
It’s almost guaranteed to be a loss. Not to be overly negative but the system is not designed to let you win.
Only professional “sharp” bettors have a real chance of making any money in the long term.
And even they can only really expect to win 53-55% of the bets they make (the amount required to break even is just under 53%)
THINK OF THAT FOR A MINUTE…
Professional, dedicated sports bettors can only expect to do slightly better than break even.
They pour countless thousands of hours of research into finding an edge. To discover the tiniest flaws that they can exploit. And they still barely do better than they would just flipping a coin over and over.
Do you think you’re going to do better than that?
IF YOU’RE IN NEED OF A WAKE-UP CALL THEN PERHAPS THIS IS IT
Sports betting is best for entertainment purposes only.
It is not a “get-rich-quick” opportunity.
QUITE THE OPPOSITE. IT WILL DRAIN YOU
Chew you up and spit you out so fast that your head will spin if you let it.
So, if you’ve been worrying that you might have a gambling problem, recording everything is a good step to take.
If you’re viewing sports betting as anything other than a way to spice up your favorite sport then you need to assess the situation carefully. It is a leisure activity.
Can it return more than it costs? Sure.
Will it? Probably not
Ask yourself if you are only risking money that you can afford to lose.
And, if you haven’t done so already, you must MUST read – How to manage your bankroll in sports betting.
Without a dedicated system for monitoring and protecting your bankroll, you are almost certain to lose.
HOW DOES IT WORK?
Under the “gambling-loss deduction” of the federal tax code, casual gamblers (we’re assuming that’s what you are) can only deduct wagers up to the amount of their winnings.
This means that if you won $500 in a year but had to spend spent $2,000 to do so, you can only deduct $500
Furthermore, casual gamblers can only take advantage of this deduction if they itemize their deductions.
IF YOU DON’T USE ITEMIZED DEDUCTIONS THEN YOU CANNOT DEDUCT ANY GAMBLING LOSSES
Those that choose to take the standard deduction are going to end up paying taxes on winnings without deducting their stakes.
HOW ABOUT IF A PROFIT WAS MADE?
The good news (yes, there is some) is that when most people itemize their deductions they only end up paying taxes when they win more than they lose.
Let’s say that a bettor spent $9,000 to amass $10,000 in winnings from sports betting.
Obviously, they have $1,000 of profit
The $9,000 is deductible if itemized
Tax is then payable on the $1,000
Each bet is not taxed separately (although it must be itemized that way).
Rather, tax is calculated on the aggregate for the tax year.
HOW EACH INDIVIDUAL STATE TAXES WINNINGS
Arizona – mobile and retail = 10% online, 8% retail
Arkansas – retail only = 13%
Colorado – mobile and retail = 18% online, 13.75% retail
Delaware – Lottery Monopoly = 50%
Illinois – mobile and retail = 15%
Indiana – mobile and retail = 9.5%
Iowa – mobile and retail = 6.75%
Louisiana – mobile and retail = 15% online, 10% retail
Maryland – mobile and retail = 15%
Michigan – mobile and retail = 8.4%
Mississippi – retail only = 12%
Montana – Lottery Monopoly – revenue minus management fees
Nebraska – retail only = 20%
Nevada – mobile and retail = 6.75%
New Hampshire – Lottery Monopoly = 51%
New Jersey – mobile and retail = 14.25%
New Mexico – retail only = N/A
New York – mobile and retail = 51%
North Carolina – tribal = revenue minus management fees
Ohio – mobile and retail = 10%
Oregon – Lottery Monopoly = revenue minus management fees
Pennsylvania – mobile and retail = 36%
Rhode Island – Lottery Monopoly = 51%
South Dakota – retail only = 9%
Tennessee – mobile only = 20%
Virginia – mobile and retail = 15%
Washington – tribal = to be announced
Washington (District of Columbia) – Lottery Monopoly, online, and retail = 10%
West Virginia – retail = 10%
Wyoming – mobile only = 10%
THE BOTTOM LINE IS THIS:
If you’re in the US and you win any amount of money from legal sports betting, you are expected to pay tax on both a federal level and a state level.
The payer is even legally obliged to take away 24% of your winnings and send them straight to the IRS if you win enough.
If you don’t want your sports betting activities to be scrutinized or your federal income tax withheld then you have to bet offshore.
We’re not recommending that you do that. It’s just an option if you prefer not to have any federal taxes withheld at the point of release and file them yourself.
The negatives of using offshore sportsbooks are many
And we are well-documented in advising against using them.
You will have zero recourse of action if anything goes wrong.
If the company decided not to pay you or declares bankruptcy out of nowhere only to spring up under a similar name. There’s almost nothing you can do.
So, that said – here are our top ten choices of offshore sportsbooks should you wish to go against our learned advice. We have no affiliation with any of them and receive no financial remuneration if you click and sign up.
It’s just that we’ve used them ourselves and reckon these to be the best.
Hopefully, you now have a basic understanding of what you require. Or you’ve been spurred into finding out.
NOW IT’S TIME TO STEP THINGS UP A FEW NOTCHES
Any more accurate advice needs to come from a dedicated tax professional.
They can advise you about your standards of record keeping and help you to deal with all the nonsense.
The USA has one of the most unbalanced, unfair tax systems anywhere in the world. The process of self-declared taxes is deliberately and needlessly complicated and punitive.
The small fry take a hammering as ever. Giant corporations walk away without paying a dime.
IT’S A RIGGED SYSTEM
You need someone on your side to help you navigate the deliberately treacherous waters. Unfortunately, that is going to cost you.
Welcome to America
Look after yourself and each other.
It’s a crazy world out there…