The legalization of online sports betting has brought the thrill and excitement of putting money on sports teams to the living rooms of many Americans. And after the thrill of watching your favorite team win big AND making money on it wears off, you may start to wonder if those winnings are taxable.
Do I Have to Pay Taxes on Online Sports Betting?
Unfortunately, any winnings on sports betting must be reported as income on your tax return. However, this doesn’t necessarily mean that you will owe taxes on your winnings.
You are only required to pay federal taxes if:
- Your gambling winnings equal $600 or more; OR
- You win more than 300 times your initial stake
The first scenario is fairly cut and dry: if you net more than $600 in gambling winnings, then you need to pay taxes on them.
However, you could also owe taxes on gambling winnings if you don’t make $600. For example, if by some miracle you place a $1 bet and make $350 off the bet, then you would need to pay taxes on your $350 earnings. This is because $350 is more than 300 times your initial wager.
Is Online Sports Betting Legal in My State?
In 2018, the Supreme Court struck down a law that essentially made online sports betting illegal in most states. As a result of the ruling, decisions on gambling laws were passed down to the states instead of kept at the federal level.
Before you start placing online bets on sporting events, it’s important to know if online sports betting is legal in your state. While over half of the states have legalized online sports betting, there are some that have not legalized it yet. Check here to see if online sports betting is legal in your state.
It’s important to remember that the law applies to the state that you are physically in. Therefore, even if you are from Colorado, where online sports betting is legal, you won’t be able to place a bet if you’re traveling to California, where it is currently illegal.
Do Sports Gambling Losses Offset Winnings?
The good news is that if you itemize your tax return, you can use your sports gambling winnings to offset your losses. For example, if you won $2,000 in sports gambling winnings, but lost $1,000, then you would only be liable to pay taxes on the $1,000 in gambling winnings.
Unfortunately, if you end up losing more on sports betting than winning, then you cannot claim the losses to offset other types of income. Regardless, it is important to keep records of your gambling losses (no matter how shameful they are) if you plan on deducting them.
Are Fantasy League Winnings Taxable?
Even your fantasy football league winnings aren’t safe from the IRS. If you win $600 or more in your fantasy leagues (or in combination with other sports betting wins), you are required to pay taxes on those winnings. This may offer some solace to you if you end up getting last place in your fantasy league each year.
How Do I Pay Federal Taxes on Online Sports Betting?
Depending on the nature of the bets you place and the sports bookie that you use, you will receive either a Form W-2G, 1099-MISC, or 1099-K. If you are receiving one of these forms from your bookie, it means that your online sports gambling winnings have been reported to the IRS.
The IRS requires you to report any gambling winnings on your Form 1040, Schedule 1, Line 8. You must report all of your winnings. In order to deduct losses from your winnings, you must complete an itemized tax return. If you take the standard deduction, then all of your winnings count as income.
How Do I Pay State Taxes on Online Sports Betting?
Paying state taxes on gambling winnings is a little more difficult. Each state has its own rules and rates when it comes to taxing these winnings. Reference the table below to see the tax rate in your state.
| How States Tax Sports Betting Winnings | ||
| State | Model | Tax Rate |
| Arizona | Mobile and retail | 10% online, 8% retail |
| Arkansas | Retail only | 13% of the first $150 million, then 20% |
| Colorado | Mobile and retail | 10% |
| Connecticut | 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 expenses |
| 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 | TBD |
| West Virginia | Mobile and retail | 10% |
| Wyoming | Mobile-only | 10% |
| District of Columbia | Lottery monopoly online, retail | 10% |
Source: Taxfoundation.org
What if I Don’t Pay Online Sports Betting Taxes?
With the launching of online sports betting in so many states this year, the IRS is sure to be on the lookout for people not paying taxes on sports betting winnings.
If you don’t pay taxes on your winnings, the late fee is 0.5% of the taxes owed for each month the tax remains unpaid, up to 25%. In addition, willfully avoiding your taxes can result in some serious fines or even jail time.
If you need help figuring out what taxes you owe on your sports gambling winnings, we are here to help! Become a FileSmart member and ask our team of tax professionals up to five questions a month for a fraction of the price of hiring an accountant. Signing up for the service even gives you access to a free online filing system to help ensure you file your taxes correctly! Sign up today at FileSmart.Tax.
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