Personal Finance

Sports betting gets a green light. Don't forget Uncle Sam will want his taxes

Key Points
  • The Supreme Court's decision to allow states to legalize sports betting has the potential to lift the shadow over game wagers.
  • Generally speaking, if you win above $5,000 from gambling, you can expect the payer (i.e., casino) to withhold 24 percent for taxes.
  • Depending on your other income, that rate might not be enough to cover taxes owed on the winnings.
Algerina Perna | Baltimore Sun | MCT | Getty Images

The U.S. Supreme Court's decision to allow states to legalize sports betting has the potential to lift the shadow over game wagers.

Yet don't think the government won't be interested in your winnings.

The IRS always wants a piece of the action.

"The amount of gambling winnings, less any losses, gets tacked on to all other income you have … and is taxed as ordinary income," said Bill Smith, managing director at CBIZ MHM's National Tax Office in Washington.

In the Supreme Court decision Monday, justices upheld a 2014 New Jersey law allowing sports betting while striking down a 1992 federal law that had banned it in states that didn't already have a law on the books, such as Nevada. Now, other states could follow the Garden State's lead.

The American Gaming Association estimates that Americans spend about $150 billion on illegal sports wagers each year.

Supreme Court rules for New Jersey in sports betting case
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Supreme Court rules for New Jersey in sports betting case

As for the taxation of gambling winnings: The new tax law that took effect this year continues to allow winners to deduct their gambling losses up to the amount of gambling income, as long as they itemize their deductions instead of taking the standard deduction. The information gets reported on your Form 1040 as "other income."

Be aware that because the standard deduction nearly doubled for all taxpayers and most deductions were eliminated, fewer taxpayers are expected to have enough deductions to make itemizing worth it.

Professional gamblers, meanwhile, face other rules for 2018 through 2025: When they deduct their expenses (i.e., traveling to and from a casino), they must add them to their gambling losses when calculating the value of the deduction instead of writing them off separately as a business expense.

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Generally speaking, if your winnings are above $5,000, the payer, such as a casino, is required to withhold federal taxes. Effective this year, that withholding rate is 24 percent, down from the previous 25 percent.

However, don't assume the amount withheld is what you'll actually owe on the money.

"The casino doesn't know if you make $12,000 a year or $26 million a year," Smith said. "They withhold at that rate, but they don't know what tax bracket you'll be in."

Taxes also might be withheld on winnings less than $5,000 in certain situations, such as if the amount won is 300 times the original bet (i.e., a $600 win on a $2 bet).

Additionally, depending on how much you win, you'll receive a Form W-2G from the casino. Even if you do not, the IRS still expects you to pony up at tax time.