In 2018, the Supreme Court ruled that the Professional and Amateur Sports Protection Act was unconstitutional, which caused a ripple effect resulting in each state being able to decide whether to allow sports wagering, significantly impacting businesses and entities that rely on the act of wagering. Since the ruling, over $125 billion has been legally wagered on sports, as thirty U.S. states plus Washington, D.C., now offer some form of legalized sports betting, according to data from the American Gaming Association.
For many, the thought of paying taxes on winnings from a sports wager is not on their mind. Many may be surprised to learn that you may have to pay taxes when placing wagers on a sporting event. Winnings from sports betting are considered income. As such, just like you report your income yearly, you must also report money won from legalized sports bets and wagers.
Do I Owe Taxes on My Sports Wagers?
Sports wagering, like wagering in general, becomes subject to federal excise taxes, regardless of whether the activity is allowed by the state. Accordingly, sports wagering as someone placing the bet is subject to the following excise taxes:
For wagers authorized by the state –
- 25 % of the amount wagered, and
- An annual occupational tax of $50 for each principal or agent accepting wagers.
For wagers not authorized by the state –
- 2 % of the amount wagered, and
- An annual occupational tax of $500 for each principal or agent accepting wagers.
If you’re someone in the business of accepting sports wagers, the following federal excise tax returns are due:
- Form 730, Monthly Tax Return for Wagers. Form 730 must be filed for each month by the last day of the month following the month for which you are reporting taxable wagers. A return must be filed each month, regardless of whether you have taxable wagers to report.
- Form 11-C, Occupational Tax and Registration Return for Wagering. Form 11-C is filed first before any wagers are accepted. Once completed, a renewal return must be filed by July 1 for each year wagers are accepted.
Additionally, depending on the state where you live, state income taxes could also apply to your winnings. This will depend not only on the state you live in but also on the state where the bet was placed. Each state has different rules and tax rates concerning income allocable to their state from sports betting.
How Much Do I Have to Pay the IRS?
While all winnings must be reported to the IRS, you only have to pay federal taxes on winnings that exceed $600 or are 300 times the original bet. These winnings are subject to a 24% withholding rate tax that can come either when the winnings are paid out in the form of withholding from the casinos or sportsbooks or when you file your taxes. Typically, a Form W-2G will be issued from the payor, depending on the amount of your win. Whether you are a recreational bettor or someone who makes a living off betting on sporting events, all winnings must be reported.
Offsetting a Win by Sustaining a Loss
It’s possible to offset your gambling winnings with gambling losses if you have proper documentation. Losses can only be claimed to the extent of gambling winnings, so you cannot have an overall loss from gambling. That wager income is reported on page 1 of your tax return, with the gambling losses (to the extent of gambling winnings) claimed on Schedule A – Itemized Deductions. Therefore, you may not receive the full benefit from your losses.
Who to Contact with Your Tax Questions Regarding Sports Wagers
If you need help navigating the complexities of taxes where sports betting is concerned, we’re here to help. Our team of experts is ready to provide insight and guidance and can address any concerns you may have.