Taxes on Sports Betting: A State-by-State Guide

Correct as of January 6, 2025.

It's 2025, and sports betting has become a big deal in the United States. 38 states and the District of Columbia have legalized at least one form of betting, either retail or online. This is an excellent feat, and one that many may not have anticipated back in 2018, when the Supreme Court lifted the federal ban on sports betting.

Legal sports betting is gaining more ground, which is great news for bettors new and experienced alike. But it's a welcome development for the government as well, and that's because it presents an opportunity to generate income on the taxes applied to winning bets.

By law, sports bettors in the United States are required to pay taxes on their winnings, no matter the amount. This applies to both retail and online betting.

Whether you bet in person or use an online sportsbook like ours, the federal and state governments consider your winnings taxable income.

That's the simple part. When we get down to specifics, it can be challenging to get a handle on how it all works. Who should you pay the tax on your sports betting winnings to, and how much should you pay?

You're in luck. Our guide covers these questions and more, so read on and be enlightened!

Tax Payable on Sports Betting Winnings

We've already established that gambling winnings are subject to tax because the government views them as taxable income. But let’s take it a step further and look at the types of tax payable. The law requires sports bettors to pay two primary taxes: federal income tax and state income tax.

Federal Income Tax

The Internal Revenue Service (IRS) describes sports betting winnings as "fully taxable, and you must report the income on your tax return."

The federal tax rate on the winnings is a flat fee for all states where sports betting is legal. Here, you pay a fixed 24% on your winnings, regardless of what state or sportsbook type they come from.

State Income Tax

You may also pay taxes on gambling winnings at state level. Obviously, this depends on the state where you reside or where the bet is placed. Some states do not tax these winnings at all.

Nevada is one of the states where taxes on sports betting winnings waived. Texas is another. But in states like Arizona, Indiana, New Jersey, and New York, sports bettors are required to pay taxes on their winnings.

Retail vs. Online Betting Taxes

Taxes on gambling winnings are payable whether you bet online or with a retail sportsbook. While the rates and regulations for federal income tax are the same, there may be differences in the specific state tax rates for both forms of sports betting.

The method of reporting and withholding may also differ between retail and online betting establishments in various states. This is often due to how the operators pay the winnings. The landscape is quite diverse, but you can always contact your state's revenue department for current and specific information.

States That Require Players to Pay Tax on Sports Betting Winnings

Thanks to the repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018, we now have 39 states and districts with legalized sports betting. It’s been a win-win situation for both players and state governments. The former can wager without issues, while the latter has more opportunities to grow revenue through taxable winnings.

Interestingly, only 27 of the states where sports betting is legal allow both retail and online betting. The other 12 permit either retail or online betting, but not both. Our comprehensive guide outlines where and in what capacity sports betting is legal in the United States.

If you live in any of these 39 states, you'll likely be required to pay tax on your sports betting winnings. In 10 of them, you only pay tax on either online or retail sports betting proceeds. The other 29 require you to pay both forms of taxes.

States With the Same or Different Retail and Online Taxes

Depending on where you live, the tax rates for online and retail sports betting will either be the same or not. Check out the table below, which summarizes what you can expect based on where you live.

Tax payable rates range from 6.75% to 51% for these states. You can consult advice provided by your state's revenue department to find out how much state tax you must pay on your sports betting winnings.

States With either Retail or Online Sports Betting Winning Taxes

As mentioned, there are 10 states where taxes are payable on either retail or online sports betting winnings, but not both. You can find them below:

Here are a few important points to note about these states: Mississippi, Nebraska, New Mexico, North Dakota, South Dakota, and Washington do not permit online sports betting, so there is no online tax.

Montana permits online sports betting but does not charge taxes on winnings.

Wyoming permits retail sports betting but does not charge taxes on winnings.

How Do You Pay Federal Tax on Sports Betting Winnings?

The law requires every sports bettor to report all their winnings on Form 1040. In this case, you report your sports betting winnings as "Other earned income."

"Winnings" here usually comprise both the stake and the winnings. For example, if you win $700 from a football bet but only staked $100, your taxable winnings are $800, not $700 (after subtracting your wager).

Form W-2 G

When you win a certain amount, the betting operator or sportsbook will email you a W-2 G form for the taxes. This tax form is where you specify the winning amount, the gambling activity type, and any federal income tax withheld from your winnings.

You only get a W-2 G form if you have gambling winnings (minus the stake) of $600 or more, and the winnings (minus the stake) are at least 300 times the wager amount.

If your winnings meet these criteria and your operator issues a Form W-2 G, you must report your total winnings on it. You must also report any taxes on your winnings that have already been withheld and attach a copy of the form to your tax return.

However, let's suppose no tax is withheld and you don't receive a form. In this case, you'd be responsible for filing and reporting all your gambling income at state and federal level.

For this reason, it's important to keep a record of your winnings and losses. Have your betting slips, tickets, receipts, and statements appropriately filed to help your tax claims.

How Do You Pay State Tax On Sports Betting Winnings

By now, you should know whether you are due to pay state taxes on your sports betting winnings or not. If you are, then it's vital that you know how to report your taxes correctly.

The IRS automatically notifies the states of your sports betting winnings. As you may expect, the states also want their share of the tax. If you live in a state where sports bettors must pay tax on their winnings, the state will expect you to include your winnings as part of your income on their state returns.

For instance, it doesn’t matter if your winnings are from Colorado or Virginia, Alabama will expect you to pay the state tax if that’s your home state.

The rule of thumb is to report the winnings and pay taxes to the state where you won the money. Then, claim an exemption on your home state return for the taxes paid.

For example, if you won money in Nevada and your home state is Alabama, report your winnings to Nevada and claim a tax exemption in Alabama.

That said, if your income is subject to a higher tax rate in your home state compared to the state where you won the money, you only need to pay the difference as tax.

Also, if your home state has lower tax rates than the state where you won the money, you may get a deduction. Managing taxes can be tricky, especially if you bet across many states. Working with a tax professional may be a good idea if you'd rather remove any doubt and stress.

How Do You Report Sports Betting Losses?

"If I report my sports betting winnings, shouldn’t I also report my losses?" Well, yes. You can report your sports betting losses and prove them to the IRS. If you do it properly, you may get deductions on your taxes.

Keep Your Records

Reporting your sports betting losses starts with documenting your activities. You'll want to keep a detailed and accurate record of every win and loss you have incurred separately. Your record should include:

• The dates and types of bets you place

• The operators’ names and addresses

• The amount you have won or lost

• The names of other people present at the place of gambling

You'll also need documents like bet slips, tickets, receipts, and bank statements. If the operator issued Form W-2 G and Form 5754, you must keep them safe.

Itemize Your Income Tax Deductions

Next, you need to present these records to the IRS. Do this by itemizing your deductions on Schedule A (Form 1040 or 1040-SR). As previously mentioned, your winnings should be reported as "Other earned income," while your losses (up to the amount of winnings) should be reported as "Other itemized deductions."

When working out your deductions, keep in mind that you can only deduct sports betting losses up to the amount of your winnings for the year. You cannot deduct losses beyond winnings. For this to work, you need to be as transparent and accurate as possible, as the IRS will cross-check every piece of information you provide.

Difference in Tax Obligations and Reporting for Casual and Pro Bettors

While casual bettors report their gambling winnings as income under Schedule A of the 1040, they cannot deduct their gambling losses beyond the winnings.

Professional bettors, on the other hand, report their winnings as self-employment income under Schedule C of Form 1040. They can also list their sports betting winnings and deduct losses and business-type expenses, such as travel costs and educational materials.

Wrapping Up

With legal sports betting becoming dizzyingly popular, American sports bettors must understand their tax obligations. To that end, we've outlined the types of tax payable at both federal and state levels.

• A flat 24% tax rate applies to every sports betting winning at the federal level, and you must report these winnings on your annual tax returns using Form 1040.

• The taxation obligations are more diverse at the state level. Some states opt not to tax sports betting winnings at all, while others impose rates ranging from 6.75% to 51%.

As a bettor, you must understand the specific regulations in the states where you reside and place bets. Are you required to pay retail or online tax in your state or both? In either case, what is the rate payable?

Besides paying taxes as required, you also need to report them adequately. Accurate tax reporting depends on how organized you keep your records. When you do it right, you can also take advantage of potential deductions for losses incurred in your sports betting endeavor.

Overall, as demanding as paying taxes on winnings may seem, it’s a necessary part of participating in the sports betting market. As much as you want to enjoy your winnings, always fulfill your tax responsibilities.

Possible Changes to the Current System

The tax system for sports betting is complex and constantly evolving. The federal and state rules in this article are based on current information. But they are subject to change over time.

That's why we strongly suggest you keep an eye on any future changes. Tax laws and regulations are reviewed regularly, especially at the state level, where rules differ across states. And while we endeavor to keep this guide updated with all the latest information, we'd also recommend you consult your state's tax authority or work with a qualified tax professional for proper guidance.

Tips for Tax Compliance on Bet Winnings

To round up, a few practical tips that could help you ensure tax compliance on your sports betting winnings:

• Keep detailed records of all your bets, wins, and losses. This includes betting slips, receipts, financial statements from sportsbooks, and other documents related to your wagering activities.

• Consider opening a separate bank account specifically for sports betting. This will make it easier to track your winnings, losses, and any associated expenses

• No matter the amount, report all winnings as taxable income on your federal and state tax returns

• Understand tax forms like Form W-2 G. According to the IRS, "a payer is required to issue you a Form W-2 G if you receive certain gambling winnings or have any winnings subject to federal income tax withholding"

• As a casual bettor, claim eligible deductions up to the amount of your winnings

• Consider professional help when in doubt, especially if your sports betting activity spans multiple states

• Keep on top of changes in laws and regulations that may affect your tax obligations

By following these tips, you can stay in the good books of the tax authorities as a sports bettor.