If you win money in a Super Bowl bet on Sunday, remember while you're celebrating that Uncle Sam can be a bit of a party crasher.
No matter where you wager — whether at a casino, through a pool or fantasy league, or at your neighbor's annual bash — the IRS expects you come to clean each year at tax time.
"Any gambling winnings you receive is considered income by the IRS," said CPA Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting in Chicago. "You have to report it."
Roughly 22.7 million Americans are expected to wager an aggregate $6 billion on Sunday's matchup between the New England Patriots and the Los Angeles Rams in Atlanta, according to a recent survey from the American Gaming Association. Of those bettors, 1.8 million plan to bet illegally through a bookie, and others are expected to place wagers through online offshore books.
And, of course, there are a ton of other unregulated bets that happen beyond those channels. And while you might be less likely to tell the IRS about smaller amounts you win, just be aware that it is considered taxable income.
For casual gamblers placing wagers through regulated sports betting in states that allow it, the IRS makes it a bit easier for you by placing reporting requirements on the payor (i.e., the casino), as well. A handful of states have legalized sports betting since last May, when the U.S. Supreme Court struck down a 1992 federal law banning it, and more than two dozen others are considering the move, according to the gaming group.
Generally speaking, if you win more than $5,000 and the amount is 300 times the original bet, the payor is required to withhold 24 percent of your winnings for federal taxes. There could be instances, however, that trigger withholding when your win is under that threshold.
And, your final tax bill could be higher or lower than the amount withheld, depending on your other income and a variety of other factors. And even if no tax is withheld, you're not off the hook for claiming the income on your tax return.
One way to reduce what you owe on your winnings is to write off your gambling losses. Of course, you'd need to be able to back up your claims with documentation.
"People don't often think about keeping track of their losses," Luscombe said. "They just lose, walk away, and then they finally win and have no records to offset it with losses."
Additionally, you can only take a deduction for any gambling losses if you itemize your deductions on your tax return. The majority of taxpayers are not itemizers because they're financially better off with the standard deduction, which was nearly doubled under new tax law that took effect in 2018.
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And, even if you do itemize, you cannot claim losses in excess of your actual winnings, said Andrew Whalen, CEO of Whalen Financial in Las Vegas.
And, he said, if you win $10,000 or more, the casino likely will require you to fill out a government form intended to prevent anti-money laundering.
Then there's a W-2G that the casino might or might not send you, depending on how much you win. For sports betting — which is treated differently, from a tax standpoint, than some other forms of gambling — you should receive one if you win at least $600 and, again, at least 300 times the original bet.
"Even if you don't get a W-2G, you still are required to report the income," Whalen said.
Fantasy sports winnings get slightly different tax treatment: If you have winnings above $600, you should receive a tax form, but it will be on a Form 1099-MISC, not a W-2G.
Remember, those forms also go to the IRS. And if you fail to report the income, you can pretty much count on hearing from the agency.
Professional gamblers, meanwhile, face some separate rules, which changed under the new tax law. 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.