You Scored With an Online Sports Bet. Do You Owe Taxes? [View all]

Here’s a good bet: Millions of fans of online sports gambling have no idea they’re racking up big tax bills on their wagers—at least as the Internal Revenue Service sees it. Sports betting has exploded since 2018, when the Supreme Court struck down a national ban, and it’s now legal in 37 states and the District of Columbia. In 2022, legal sports wagers totaled $93.2 billion versus $6.6 billion in 2018, and they account for about 15% of commercial gambling revenues.

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While the phone apps have made sports bets easy and fun, the taxes on them are not. A key change in the law plus other factors have combined to make taxes on online sports betting both unfavorable and murky. (This is generally true for casino gambling as well.) These problems needn’t concern most casual bettors who wager a couple of times a year, but they matter for fans who bet frequently or have a big win.

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Here’s where things stand. Gambling winnings are taxable at ordinary income rates, and they’re reported on Line 8b of Schedule 1 of the 1040 form unless the filer qualifies as a professional gambler, which is hard to do. For nonprofessionals—think most online bettors—losses are deductible up to the amount of their winnings. So if someone wins $700 and loses $750, then $700 of losses are deductible.

There’s a big catch: Gambling losses are an itemized deduction on Schedule A, along with deductions for mortgage interest, state and local taxes and other items. But the 2017 tax overhaul greatly increased the standard deduction taxpayers get if they don’t itemize, so only about 10% of filers now itemize compared with about 30% before. The upshot is that millions of non-itemizers won’t get a specific deduction for their gambling losses, while their winnings remain fully taxable.

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