Tax Strategies for Gambling Income and Expenses: Key Points to Bear in Mind
In the rapidly growing gaming industry of the United States, it's important to remember that gambling winnings are fully taxable income for both the federal government and most states. This means that all winnings—cash, prizes, and the fair market value of items such as cars or trips—must be declared on your federal tax return, even if you don't receive a Form W-2G [1][2][4].
However, a new law known as the One Big Beautiful Bill Act (OBBBA), effective from the 2026 tax year, limits the deduction of gambling losses to 90% of your winnings. This means if a gambler wins and loses the same amount, 10% of those winnings will still be taxable [3][5]. For example, a person with $100,000 in winnings and $100,000 in losses can only deduct $90,000 in losses, paying tax on $10,000 of income despite breaking even on gambling overall.
When it comes to state laws on online sports betting taxes, most states that have legalized online sports betting treat gambling winnings as taxable income that must be reported in line with state tax laws. However, the approach varies from state to state: some states tax online sports betting winnings at their standard state income tax rates, while others may have specific regulations or reporting requirements for online bets. Many states require operators to withhold state taxes on substantial winnings, similar to federal withholding [1][2][4].
Unfortunately, as of 2025, there is no comprehensive, state-by-state breakdown of online sports betting tax laws available. Generally, states that have legalized sports betting—such as New Jersey, Pennsylvania, and Colorado—incorporate gambling winnings into their state taxable income, often requiring reporting and tax withholding [1][2][4].
| Aspect | Federal Law (2026 onwards) | State Laws | |---------------------|------------------------------------------------------------------|--------------------------------------------------------------------| | Taxable Income | All gambling winnings must be reported as income | Most states tax gambling winnings, including online sports betting | | Loss Deductions | Losses deductible only if itemizing, capped at 90% from 2026 onward | Varies by state; generally follows federal principles | | Reporting Forms | Form W-2G for reporting significant winnings, but report all winnings | State-specific reporting and withholding rules apply | | Online Sports Betting| Taxed as gambling winnings at federal level | Taxed in states where online betting is legal |
If you plan to file taxes involving online sports betting winnings, it's crucial to check the specific rules for your state for compliance. For precise state-level details on online sports betting tax laws, consulting state tax authorities or a tax professional is recommended [1][2][3][4][5].
In light of the One Big Beautiful Bill Act (OBBBA) effective from 2026, only 90% of gambling losses can be deducted, which means a gambler who wins and loses the same amount will still have 10% of those winnings as taxable income. For those who partake in online sports betting, it's essential to verify the specific tax rules in your state, as the approach towards online betting taxes in various states differs significantly.
