Do You Have to Pay Taxes on Sports Betting in the United States?

Yes, in the United States, all sports betting winnings are considered taxable income and must be reported on your federal tax return. This includes cash winnings, prizes, and winnings from horse races. Gambling winnings are taxed as ordinary income, with rates ranging from 10% to 37% depending on your tax bracket, and you must report all gambling winnings on your tax return, regardless of whether you receive a W-2G or 1099 form. According to April Walker, an expert in IRS tax practice and ethics, it is crucial to properly report and keep records of all gambling income to comply with tax authority requirements. You can report your gambling income on Schedule 1 (Form 1040) as ‘Other income: gambling,’ and all gambling winnings must be included in your total income for the tax year.

If your winnings exceed $5,000, sports betting platforms, including online sportsbooks and sports betting operators, may withhold 24% for federal taxes, as required by the tax authority. Most states also tax gambling winnings, but states levy different rates and structures, with some states taxing online wagers more heavily than retail wagers. For example, the highest tax rates are in New Hampshire, New York, Oregon, and Rhode Island at 51% of sportsbook revenues, while Nevada and Iowa levy the lowest at 6.75%. Sports betting taxes brought in over $2.8 billion for states across the country. The tax year is important for reporting and deducting gambling income and losses.

Federal tax obligations apply to all bettors, but your final liability can vary significantly depending on your state of residence and whether you itemise deductions to offset winnings with losses. For example, a bettor with $10,000 in net profit could see that amount reduced by 20% to 40% after federal and state taxes are applied, making it essential to track every wager to protect your actual ROI.

Sports Betting Taxes in Other Countries

Outside of the UK and US, tax rules vary significantly, often falling into one of two categories: taxing the bettor or taxing the sportsbook. Understanding your local regulations is vital because high tax rates can fundamentally change your required “break-even” percentage, even when using industry leading AI tools like us at Leans.ai.

Canada

For the vast majority of Canadians, sports betting winnings are completely tax-free. The Canada Revenue Agency (CRA) generally views gambling as a hobby rather than a source of income; however, if you bet so systematically and frequently that it is deemed a business activity, you may be required to report net profits as taxable business income.

Australia

Australia is one of the most bettor-friendly jurisdictions in the world, as gambling winnings are not taxed. Because the government taxes the operators through a “Point of Consumption” tax, recreational and even high-volume professional bettors can generally keep 100% of their returns.

Europe

Taxation across Europe is a patchwork of different systems that often change annually. Some countries, like Germany, apply a tax on every stake (around 5.3%), while others, like France, have recently increased operator taxes to nearly 60%, which can lead to less competitive odds for players. Always check your specific country’s status, as some jurisdictions may require you to pay income tax on winnings from sites not licensed within the EU.

Deductions and Losses: Can You Offset Your Winnings?

When it comes to sports betting taxes, understanding how to handle gambling losses can make a significant difference in your final tax bill. In the United States, the Internal Revenue Service (IRS) allows you to deduct gambling losses from your gambling income, but only if you itemise deductions on your tax return. This means that if you’ve scored big on online sports betting or hit a lucky streak at the casino, you may be able to offset your sports betting winnings with your gambling losses, reducing your taxable income.

However, there are strict rules to follow. You can only deduct gambling losses up to the total amount of your gambling winnings for the year. For example, if you have $5,000 in sports betting winnings and $7,000 in gambling losses, you can only deduct $5,000 of those losses. Any losses beyond your total winnings cannot be used to lower your tax liability. To take advantage of these itemised deductions, you must keep detailed records of your gambling activity, including receipts, tickets, statements, and other records that clearly show your wagers, winnings, and losses.

The Big Beautiful Bill Act will change how much you can deduct: taxpayers will only be able to deduct up to 90% of their gambling losses against their winnings. So, if you win $2,000 and lose $2,000, you’ll only be able to deduct $1,800 of those losses, potentially increasing your taxable winnings and the taxes you owe.

Tax experts, including those at the American Institute of CPAs, strongly recommend maintaining an accurate diary of your gambling activity. This should include the date and type of wager, the name and address of the sports betting operator or casino, the amounts won and lost, and supporting documentation like receipts or betting slips. These detailed records are essential if you want to deduct gambling losses and withstand any IRS scrutiny.

It’s also important to remember that many states and the District of Columbia have their own tax implications for gambling income. States like Rhode Island and New Hampshire, for example, have specific tax rates and withholding requirements for sports betting winnings. Local taxes may also apply, so it’s crucial to understand the rules in your area and comply with all tax authorities.

By keeping thorough records and understanding both federal and state tax rules, you can minimise your tax liability and make the most of the deductions available to you. If you’re unsure about the best tax practice for your situation, consulting a tax professional can help you navigate the complexities of sports betting taxes and ensure you’re fully compliant.