Winning big in sports gambling is fun, exciting, and potentially life-changing. While a win is always a win, the amount of money a player comes home with might be misleading at first. That’s because like everything, taxes come into play. Making money is fun with sports betting, but it comes with a tax bill.
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How Much Taxes Do You Pay on Sports Gambling Winnings
When it comes to taxes, any money that won from gambling is considered taxable income. This includes money won from betting on sports, playing the lottery, or even hitting the jackpot at a casino. The IRS considers any and all gambling winnings to be taxable income, so it’s important to report accurately. The tax rate depends on the total amount of taxable income for each individual filing.
The good news is that there is no special tax on sports gambling winnings in the United States. This means that people won’t have to pay any additional federal taxes on winnings. There’s just the income aspect of the taxes that would be the same if the money was earned doing side jobs. So, if someone wins $5000 from gambling on sports, the marginal income tax rate on that amount is the same as cutting lawns or doing food delivery.
The bad news is that some states do have additional taxes on gambling winnings. So, those living in a state with an income tax and/or a state tax on gambling winnings will have to pay those taxes as well. For example, in New Jersey, any gambling winnings are subject to both the state income tax and the state’s casino revenue tax. So, if you won $5000 from gambling on sports in New Jersey, a person owes the state $500 in taxes (10% of your gambling winnings). This applies to in-person and online gambling.
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Of course, when losing money gambling, that is deductible on taxes. So, after losing $5,000 gambling on sports betting, that amount is deductible from other taxable income. This could help lower a person’s overall tax liability. Just be sure to keep good records of gambling activity so that there is proof to show the IRS if need be.
Paying taxes on sports gambling winnings and losses can be a bit tricky. As long as a person keeps good records and reports all income and losses accurately, filing shoes’t be a problem. For any questions, consulting with a tax professional helps.
Will New Tax Laws Ever be Introduced For Sports Gambling?
It’s very hard to see tax laws fadeaway when it comes to sports gambling. If anything, states will be looking to get more money out of winnings if they can. When they open up legal opportunities to gamble in different parts of the United States, new tax laws might be following.
While paying taxes are annoying, it’s been a major selling point for states to finally give in and allow it in the first place. That’s the good and the bad of this vice.
What Happens if a Person Fails to Pay Taxes on Winnings?
The IRS eventually caches on if a person is winning a good amount of money and not reporting it to the IRS. Yes, it’s probably true that a person could get away with winning a little bit of money here and there and not reporting it, but even that is risky.
Taxes have been the downfall for some big winners in Vegas, and it all could have been avoided with better bookkeeping. Don’t fall behind, or it could be a very painful way to have any earnings quickly evaporate.
Why Are There Taxes on Sports Gambling?
As the primary source of income for most governments, taxes are a necessary part of life. Sports gambling winnings count just the same as earnings, contest winnings, and more. No one enjoys paying them, but they take care of so much at the local, state, and federal level.
Some tax havens do exist, but only big-time, sharp gamblers tend to feel like those might be worth it. There’s a lot of work that goes into keeping everything by the books when going through tax havens and shelters, so most winners just go ahead and pay taxes depending on where they live.