Federal taxation: the basic rules
The IRS treats all gambling winnings as ordinary income. From IRS Publication 525: "You must report all gambling winnings on your Form 1040 or 1040-SR (use Schedule 1)." This includes:
- Sports betting moneylines, spreads, totals, parlays, props
- Daily fantasy sports (DFS) net winnings
- Lottery, scratch-off, raffle winnings
- Casino winnings (slots, table games, poker)
- Horse racing winnings
- Bonus bets won at sportsbooks (yes, these are taxable too)
W-2G: when the operator reports you to the IRS
Operators are required to file IRS Form W-2G for any of the following:
- Single sports bet win of $600 or more AND the win is 300:1 or higher payout (e.g. a $2 ticket winning $600+, or a $10 ticket winning $3,000+)
- Single sports bet win of $5,000 or more regardless of payout ratio
When a W-2G triggers, the operator also withholds 24% federal income tax from the payout. You receive 76% of the win; the operator remits 24% to the IRS in your name. The W-2G shows up in your tax return as both income and as withholding (so you get partial credit).
Important: you owe income tax on every win, not just W-2G-triggering wins. The W-2G is just a reporting threshold. Sub-threshold wins don't generate paperwork but you're still legally obligated to report them.
The loss deduction: itemizers only
You can deduct gambling losses up to the amount of gambling winnings, but only if you itemize deductions on Schedule A.
Example: You won $10,000 in 2026 and lost $8,000. Your federal tax situation:
- If itemizing: Report $10,000 winnings as income (line 8b of Schedule 1). Deduct $8,000 losses as itemized deduction (Schedule A, line 16). Net taxable: $2,000.
- If taking standard deduction: Report $10,000 winnings as income. Cannot deduct losses. Pay tax on full $10,000.
The standard deduction in 2026 is $15,000 for single filers, $30,000 for married filing jointly. If your itemized deductions including gambling losses don't exceed the standard deduction, the standard is more tax-efficient.
Critical: the loss deduction cannot exceed winnings. You can never use net gambling losses to reduce non-gambling income.
Required record-keeping
IRS Publication 529 specifies the records you must keep:
- A contemporaneous gambling diary: date, type of bet, sportsbook, amount wagered, outcome
- Copies of all W-2G forms received
- Bank statements showing deposits/withdrawals to/from sportsbook accounts
- For wins/losses without a W-2G: receipts, statements, transaction histories
Most US-licensed sportsbooks ship a year-end statement download in January for the prior tax year. Major operators that do this:
- DraftKings: Account → Documents → Annual Statement (PDF)
- FanDuel: Account → Statements → Annual Activity
- BetMGM: My Account → Statements → Year End
- Caesars: Account Settings → Documents
Download all of them. Save them with your tax records for 7 years (the IRS audit lookback for material under-reporting).
State-level taxation: the landscape
Most states with income tax also tax gambling winnings at the state-income-tax rate. The exceptions:
- Zero state income tax: Tennessee, New Hampshire, Florida, Texas, Nevada, South Dakota, Wyoming, Washington (no state tax on gambling). Alaska also has no state income tax.
- State income tax but no gambling-specific rules: Most states fall here. Treat gambling income at standard state-income-tax rates.
States with specific gambling-tax rules:
| State | Gambling tax rule |
|---|---|
| Iowa | 3.8% state withholding on wins triggering federal W-2G withholding (effective Jan 1, 2026 per SF 605) |
| Maryland | 8.95% withholding on wins over $5,000 |
| New Jersey | 3% state withholding on wins over $10,000 |
| Pennsylvania | 3.07% state withholding on wins over $5,000 |
| Connecticut | 6.99% state withholding on wins over $5,000 |
| New York | State withholds at NY income-tax rate (4-10.9% depending on bracket) on wins over $5,000 |
| Massachusetts | 5% withholding on wins over $5,000 |
If you bet in a state where you do not reside, you may owe tax in BOTH the state where you placed the bet AND your home state. Most states offer a credit for tax paid to other states; check both states' rules.
The bonus-bet question
Bonus bets are technically winnings. The IRS position: when you withdraw money, it's taxable income, regardless of whether the original wager was funded by cash deposit or bonus credit.
Operators inconsistently issue W-2Gs for bonus-bet winnings. Some treat the bonus credit as cost basis (so the win minus bonus credit is the reportable amount). Others issue W-2Gs based on gross win regardless of bonus origin.
Conservative approach: report all withdrawals over deposits as income. If you deposited $1,000, claimed a $500 bonus, and withdrew $2,200, your taxable winnings are $1,200 (withdrawal minus deposit). Track this carefully.
How to actually file
- Compile all year-end statements from each sportsbook you used
- Add up gross winnings (not net)
- Add up gross losses
- Report gross winnings on Schedule 1, line 8b ("Other income: gambling")
- If itemizing, report gross losses (capped at winnings) on Schedule A, line 16
- Attach any W-2G forms received
- Keep records for 7 years
For complex situations (high volume, multiple states, professional gambler classification), engage a CPA who works with gamblers. The fees pay for themselves on any audit risk above $5,000.
Tools to use
Use our state guides to check your specific state's gambling-tax rules. Our research piece on state tax revenue covers what each state does with the operator-side tax revenue (different from the bettor-side tax discussed here).