Sports betting is one of the most popular and accessible forms of gambling in the USA. With online sports betting platforms now taking wagers from anywhere in the US, it’s easier than ever to make a bet and stand to win more money.
But with the potential for greater winnings come greater tax liabilities too. In the USA, any money made from sports betting is taxable and must be reported on your annual tax return – so it pays to know the ins and outs of sports betting taxes before you place a bet.
The Basics of Paying Sports Betting Taxes
As with any other type of income, you will have to pay taxes on money you make from sports betting. Under the rules of the IRS, any winnings from sports betting in the USA are categorized as ‘income from wagering’ and it is taxable income. This applies no matter how much money you win from sports betting.
How to Report Your Sports Bets for Tax
Unless you operate as a professional gambler, reporting sports betting winnings on your tax return will be as simple as reporting it as income on your 1040 form. The good news is that most casual betters are not likely to be taxed at high rates.
Professional gamblers however will have to be more thorough. When filing tax returns as professional gamblers, they must include itemized deductions in addition to the amount wagered, the amount won and the amount of losses recorded from the year.
Filing Your Tax Return
In order to get the most out of your sports betting winnings, you should file either a Form 1040 or Form 1040EZ. When it comes to deducting the losses against your winnings, you will need to file a Schedule A form.
When filling out these forms, you should make sure to include all your winnings and losses as well as any applicable tax deductions. Additionally, make sure that you keep all your online sports betting records in order – such as receipts, bank and credit card statements and any playthrough requirements you may have completed.
Tax Exemptions and Tax Rates
The amount of taxes you owe on your sports betting winnings will depend on a number of factors, such as how much you won and your individual tax exemptions and deductions. It is important that you know the actual rates for your state and the federal government, as this will give you a better understanding of how much tax you are liable for.
Sports betting can be a great way to pass the time and potentially make some money. However, it is not something to be undertaken lightly and it is important to be aware of the tax implications of sports betting.
By familiarizing yourself with the basics of taxes on sports betting winnings in the USA, you will be better prepared to make informed decisions and potentially minimize your tax liabilities.
“How much tax do I pay on sports betting winnings in the USA?”
The taxation of gambling winnings in the United States is based on where the winnings were earned. State and local governments tax winnings from certain types of gambling at their own rates, while the federal government taxes winnings from all other types of gambling, including sports betting, at a flat rate of 25%. Depending on where the sports betting took place, additional taxes may also apply.
Introduction to Paying Taxes On Sports Betting Winnings in the USA
If you win sports bets in the USA, you may have to pay taxes on those winnings. It’s important to understand the ins and outs of paying taxes on sports betting winnings, to ensure that you are compliant with your local taxation laws. This overview will help you make sure you know what’s expected of you.
Are Betting Winnings Taxable in the USA?
The short answer is yes – in the majority of cases, betting winnings in the USA are taxable. For example, if you make a profit on a sports bet you placed in person with a licensed gambling operator, it’s likely that you will be liable to pay tax.
Betting winnings are usually considered to be taxable ‘income’, under the Internal Revenue Service or IRS. Your winnings may be subject to federal income tax and possibly state income tax too, depending on the state you live in. As income tax is often then used to fund various other projects in your state, it’s important to make sure you pay correctly.
State Taxes On Betting Winnings
State taxes on betting winnings are complicated. The majority of states – including Illinois, New York, and Pennsylvania – take a flat percentage share of your winnings. However, there are exceptions. For example, New Jersey has chosen to omit state taxes on betting winnings, as long as the winnings come from certain qualifying casinos or sports betting sites.
In addition, some states have different kinds of taxation laws on sports betting winnings. For example, Washington State’s sports betting laws dictate a special ‘Sports Betting Activity Tax’ paid on top of regular income tax. As such, it’s important to make sure you are aware of the taxation laws applicable to you.
Tax Implications for Professional Gambler
If you are a professional gambler, meaning you derive the majority of your income from gambling activities, then there is a slightly different taxation system in place. In this case, your winnings are often considered to be ‘self-employment income’ – which means that there are additional taxes you may be expected to pay, such as Social Security and Medicare taxes. It’s important to ensure that you understand the rules around self-employment taxes if you plan to make money from gambling on a regular basis.
Claiming your Losses Back
When you make a profit, it’s easy to forget that you may also be able to claim back losses you’ve incurred. We strongly recommend that you keep a record of all sports betting slips, wagers and losses, as you may be able to ‘write-off’ losses to reduce your taxable income. As the laws around taxation can be quite complex, we highly advise that you speak to a qualified accountant or tax advisor before taking any action.
Paying taxes on winnings from sports betting in the US is a natural part of gambling, and should be planned for. Make sure you are aware of the various taxes that might be relevant for you, for both state and federal income tax. If you are a professional gambler, self-employment taxes may need to be filed. On the flip side, you may be able to claim back losses from gambling against your taxable income. As the tax system can be complicated, if you are unclear, make sure to get advice from a qualified professional.
Can sports betting winnings be taxed in the USA?
Yes, sports betting winnings are subject to federal taxes. Winnings in the United States are generally subject to a 24% federal tax and may also be subject to state taxes. Winnings must be reported on a 1040 form and winnings of $600 or over require filing a 1099. Professional gamblers may need to pay additional self-employment taxes. Losses can be reported to reduce taxable income.
Can sports betting be taxed in the USA?
Yes, sports betting can be taxed in the USA. The amount of tax varies depending on the state, but it can range from 0–30% of the wager. Depending on the state, the tax may be charged on the gross winnings or the adjusted winnings. Some states also require taxes to be paid on the net winnings (after deducting out the losses) or on the net point spread revenue. Some states also require professional gamblers to pay self-employment taxes. Losses can be claimed to reduce income tax.
Is sports betting legal in the United States?
At the Federal level, sports betting is currently illegal in the United States. However, several states have passed legislation which allows for the legalization and regulation of sports betting within their borders, including Nevada, New Jersey, Pennsylvania, Delaware, Rhode Island, West Virginia, Mississippi and New Mexico. Other states are currently considering similar legislation.
What states allow sports betting?
As of 2021, some of the states that allow legal sports betting include: Alabama, Arkansas, Delaware, Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, West Virginia, and, most recently, Virginia.