Does the IRS Tax Sports Betting Winnings?
Yes. Sports betting winnings are considered ordinary income by the IRS and must be reported on federal tax returns. Tax rates on winnings from sports bets can range from 10% to over 35%. This rate depends on an individual’s total income from all sources and the tax bracket used to calculate how much they owe in taxes.
Individuals who lose money from betting on sports can sometimes deduct losses if they file an itemized return. When deducting sports betting losses, be aware that the IRS does not allow you to deduct more than the amount you have won.
Are Sports Bets Taxed at the Same Rate as Fantasy Sports and Other Gambling Winnings?
Gambling winnings totaling over $5,000 are taxed at a flat rate of 24%. Sources of gambling winnings as identified by the IRS include sweepstakes, poker tournaments, wagering pools, and lotteries.
In addition, winnings that are paid as annuities or properties are also considered taxable and subject to the 24% tax.
Fantasy sports betting is viewed as recreational/hobby income by the IRS. You will receive a 1099-MISC if you earn $600 or more from fantasy sports bets in one tax year. Some expenses from betting on fantasy sports may be deductible as a “hobby” expense if itemized deductions exceed 2% of your adjusted gross income.
For example, a taxpayer with an AGI of $60,000 must have fantasy sports betting expenses greater than $1,200 (2% of $60,000) to be able to deduct them.
How Much Do You Have to Win on Sports Bets to Owe Taxes?
Even if you win just $5 from sports betting, the IRS technically considers this reportable. It does not matter whether your bets are made through a betting app or website, at a casino sportsbook, or in person.
Netting transactions (i.e., lumping all sports bets together) is not allowed by the IRS. Each sports betting transaction must be reported separately. Also, you cannot lower the amount of your winnings by simply subtracting losses.
The IRS does not consider this difference to be your true income amount from sports bets. Losses from sports betting may be claimed as itemized deductions only.
Will You Receive a W-2, 1099, or Both for Sports Betting Winnings?
If you make over $600 from fantasy sports betting, you can expect to receive an IRS 1099 form. In some cases, you may receive a W-2G when you place sports bets in person at a sportsbook.
You will not receive a traditional W-2 like you do from your employer, since sports betting winnings are not considered wages.
Digital and in-person gambling operators (i.e., casino sportsbooks) typically send records of taxable winnings to the IRS and to the person who won on sports bets.
The form issued by gambling businesses to the IRS and winning players is called a W-2G. This statement includes the total of your sports bet winnings and any withholding amounts you requested to be taken out of your winnings.
People who receive W-2G statements have:
- Won over $1,200 playing slots or bingo.
- Won over $1,500 from playing Keno.
- Won more than $5,000 from playing in poker tournaments.
- Won more than $600 from sports bets or other gambling. In addition, the payout received was 300 times (or more) the amount you bet. For example, if you placed a $5 bet and won $1,500, you should be issued a W-2G statement by the operators of the casino or other gambling organization.
How Do You Report Sports Betting Income on Your Tax Return?
All gambling winnings, including money won on sports bets, must be reported on Form 1040 or 1040-SR. This also includes winnings that were not indicated on a W-2G.
Report the total winnings on line 21 of Form 1040. If you want to deduct gambling or sports bets losses on a 1040, find line 27 of Schedule A, and insert the amount of your losses for which you can provide documentation.
Remember, deductions for a gambling loss or loss from sports betting cannot exceed the total amount of winnings.
If you receive a 1099 or W-2G for sports bets and do not report your winnings, you will likely be contacted by the IRS via mail. Notice CP 2000 is the first warning letter issued by the IRS to individuals who have underreported their income.
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