Ever since the Supreme Court struck down PASPA in 2018, sports betting has exploded across the U.S. Now, 38 states (plus DC) have legal sports betting in one form or another. This boom means more opportunities for bettors, but it also brings a whole mess of tax obligations—and they’re all over the map depending on where you call home.
Here’s the bottom line: sports betting winnings are taxable income at both the federal and state level, but tax rates can swing wildly from state to state. Some places slap operators with sky-high taxes that might trickle down to you in the form of worse odds or fewer promos. Others go easier, creating friendlier conditions for both players and books.
Knowing your state’s tax rules isn’t just about staying legal—it can actually change your betting strategy and your bottom line. Depending on where you live, you might pay nothing extra, or you could be looking at rates north of 50% (yeah, Rhode Island really takes a big chunk).
Understanding Sports Betting Taxes in the United States
Taxing sports betting in America is a patchwork of federal and state rules. Since Murphy vs. NCAA in 2018, legal sports betting has popped up in 38 states and DC, and each has its own way of handling taxes.
Federal Versus State Taxation
All gambling winnings—including sports bets—are considered taxable income by the IRS. The feds use the same progressive brackets as they do for your regular paycheck, so your sports betting profits might get taxed anywhere from 10% to 37%, depending on your total income.
State taxes, though, are all over the place. Nevada, for example, doesn’t have a state income tax, but New Jersey taxes retail winnings at 8.5% and mobile at 14.25%. Pennsylvania and Rhode Island? Some of the highest rates out there.
Key Federal Requirements:
- You have to report all gambling winnings to the IRS
- Winnings are subject to federal income tax
- If you’re a professional, you might be able to deduct losses and expenses
Types of Taxable Winnings
Sports betting creates a few different kinds of taxable income. Here are the main ones:
- Direct wagers: Your standard bets on games
- Parlays: Combo bets with bigger payouts
- Future bets: Long-term predictions
- Promotional credits: Sometimes those bonuses or “free bets” count as taxable, too
The IRS doesn’t care what kind of bet you made. Whether you hit a simple point spread or a wild parlay, it’s all gambling income.
If you hit it big, the sportsbook might send you a Form W-2G—usually for wins over $600 at 300-to-1 odds, or $5,000 and up.
Reporting Sports Betting Income
You’re supposed to report all gambling winnings on your tax return, even if you never get a W-2G. The IRS wants to see this on Form 1040, Schedule 1, Line 8 (“Other Income”).
Casual bettors can only deduct gambling losses if they itemize on Schedule A, and only up to their reported winnings. No using losses to wipe out other income, unfortunately.
Record-keeping best practices:
- Keep track of every bet, win, and loss
- Hang onto betting slips and account statements
- Note dates, locations, and amounts
- If you’re a pro, keep receipts for related expenses
Pros report on Schedule C and can deduct business expenses, but you’ll have to prove betting is your main gig.
State-by-State Overview of Sports Betting Tax Rates
Sports betting tax rates across the U.S. are all over the place—some states charge as little as 6.75%, while others go all the way up to 51%. That’s a huge swing, and it definitely affects both operators and players.
Comparing Tax Rates Across States
New Hampshire, New York, and Rhode Island have the highest tax rates on sportsbooks, clocking in at 51%. That’s a lot of money for the state, but it can lead to worse odds or fewer promos for bettors.
On the flip side, Nevada and Iowa have the lowest rates at 6.75%. That kind of tax environment usually means better promos and odds for players.
Right now, 38 states allow some form of legal sports betting. But only 27 states and DC let you bet online anywhere in the state.
Tax Rate Range by State:
- Highest (51%): New Hampshire, New York, Rhode Island
- High (30-40%): Pennsylvania, Illinois (top tier)
- Moderate (15-25%): New Jersey, Michigan, Colorado
- Low (6.75-10%): Nevada, Iowa, Mississippi
Flat Tax Rate Versus Tiered Tax Systems
Most states just use a flat tax rate on sports betting revenue. Same percentage, no matter how much the operator makes.
Illinois switched things up recently, moving from a flat 15% tax to a graduated system:
- $0 to $30 million: 20%
- $30 million to $50 million: higher rate
- Over $50 million: up to 40%
A tiered system can help smaller operators and squeeze more from the big guys. Illinois is basically experimenting as the market matures.
Some states also charge different rates for retail (in-person) and online bets. Usually, the online rates are higher—probably because there’s more money in mobile betting.
State and Local Taxation Practices
Taxes hit at more than one level. States take the biggest chunk, but sometimes local governments tack on extra fees or taxes.
The real tax rate can be lower than what’s on paper, thanks to deductions and credits. For example, if a state lets operators deduct promos, the effective tax rate drops.
This leads to some weird situations. One state lists a 10% rate but, after deductions, operators only pay about 5.4%.
Since June 2018, states have pulled in roughly $8.2 billion in taxes from sports betting. New York alone has raked in $2.9 billion, which is honestly wild.
For players, you’re usually on the hook for both federal and state income tax on your winnings, but the exact rate depends on your state’s income tax structure.
Key States and Unique Tax Policies
A few states have really unique ways of taxing sports betting. Their rules can be pretty different—sometimes a good thing, sometimes not so much.
New Jersey: Setting the Standard
New Jersey changed the game after its Supreme Court win in 2018. The state taxes retail sports betting revenue at 8.5%, and online betting at 13%.
For players, New Jersey sticks to the federal tax rules. If you win more than $600 at 300-1 odds or better, you need to report it. The state doesn’t tack on extra taxes for gambling income.
Jersey’s approach is now the model for a lot of other states. It brings in serious money ($84.9 million in FY 2023) but doesn’t crush operators or players.
Operators have to give players annual win/loss statements, which actually makes tax time a little less painful.
Nevada: The Original Sports Betting Hub
Nevada’s been doing this the longest, and it keeps things simple: a 6.75% tax rate—one of the lowest around. That’s helped it stay competitive even as other states jumped in.
If you’re playing in Nevada, you have to report winnings over $600 when the odds are 300-1 or more. Big wins (over $5,000) usually come with a W-2G form.
Nevada doesn’t have state income tax, so frequent bettors get a break there.
Decades of experience mean Nevada has a pretty efficient system that works for both regulators and businesses.
Other Notable State Tax Structures
Pennsylvania hits operators with a 36% tax rate, which can mean worse odds for players.
Illinois uses a sliding scale (15% to 17.5%) based on revenue. If you win, Illinois treats those gambling winnings as income.
Colorado sits at a moderate 10% and puts the tax money toward water conservation.
Michigan has a tiered system from 8.4% to 19.6%. Players pay the state’s 4.25% income tax on winnings.
Tennessee is online-only, charges operators 20%, and requires a hold percentage that can sometimes mess with odds.
How Sports Betting Revenue is Taxed
States pull in a lot of tax revenue from sports betting, but the way they do it can be pretty different. Most tax the operators based on gross gaming revenue (GGR), not just the total money bet.
Calculating Taxable Revenue
Sports betting taxes start with gross gaming revenue: that’s total bets minus payouts. The “handle” is just the total amount wagered. Most states tax the GGR at rates between 5% and 40%.
New York takes a whopping 51% of GGR, which has brought in about $2.9 billion in tax revenue since sports betting went legal. Illinois just moved to a graduated tax system, topping out at 40% for the biggest operators.
Some states use a tiered tax, where the rate climbs as revenue goes up. The idea is to get more from the big players and give new operators a chance to get started.
Role of Licensing Fees and Promotional Deductions
Beyond tax rates, states also make money by charging operators licensing fees—sometimes a few thousand, sometimes millions.
A few states let operators deduct promotional credits before calculating taxes. So, if a sportsbook offers “free bets,” those can come off the top of gross revenue. This can really shrink the state’s tax haul.
Colorado, for example, allows promo deductions, which dropped its effective tax rate to just 5.4% (even though the official rate is 10%). Some states have cut back on these deductions to boost tax revenue. Pennsylvania and New Jersey handle promo deductions differently, and it definitely impacts what operators pay.
Impact of Online Versus Retail Markets
Taxing online sports betting isn’t the same as taxing retail (in-person) betting. Online usually brings in way more money, both in handle and revenue.
Mobile betting means more people are playing, and states with both online and retail options see about 85-90% of their sports betting tax revenue come from online bets.
Some states use different tax rates for online and retail. Rhode Island, for example, taxes online sportsbooks higher than brick-and-mortar ones. Makes sense, since online has lower overhead and a much bigger reach.
Tax Compliance and Responsible Gaming
If you’re betting on sports, you really need to know your tax responsibilities and keep good records. Following tax procedures and sticking to responsible gaming habits go a long way toward making sure your sports betting stays fun—and above board.
Meeting State and Federal Requirements
Sports betting winnings? Yeah, they count as taxable income—both to the IRS and your state tax folks. You’re supposed to report every cent you win on your federal tax return, using Form 1040.
If you get lucky and hit a big win—think $600 or more at odds of 300-to-1 or better—the sportsbook will hand you a W-2G form. That’s their way of making sure the IRS knows about it, too.
States don’t exactly agree on how to handle gambling income. Out of the 38 states plus DC that have legalized sports betting, each has its own forms and thresholds. Some, like Nevada and Florida, skip state income tax altogether, while places like New York and California? Their tax rates can be pretty steep.
The IRS isn’t picky about the amount—you’re supposed to report every win, no matter how small. If you don’t, you could face penalties, interest, or even an audit.
If you’re betting professionally, you might need to make quarterly estimated tax payments to dodge underpayment penalties. It’s not the most exciting part of sports betting, but it’s important.
Deductions for Gambling Losses
Bettors can deduct gambling losses, but only up to the amount they’ve won. You’ll need to itemize these on Schedule A of Form 1040, so the standard deduction is off the table if you’re claiming gambling losses.
To pull this off, you’ll want really detailed records—both wins and losses. The IRS only lets you deduct losses from the same tax year as your winnings, so you can’t carry them forward.
State rules can get a bit messy. Some follow the federal approach, but others don’t allow gambling loss deductions at all. It’s worth double-checking your state’s tax rules before you file.
Tips for Responsible Record-Keeping
Keep a detailed gambling log—dates, locations, types of bets, amounts, outcomes—the whole nine yards. Hang on to all your betting slips, account statements, and sportsbook receipts for proof.
Using a dedicated bank account or credit card for your betting can make tracking deposits and withdrawals a lot easier. Some online sportsbooks even send out annual win/loss statements, which can be a lifesaver at tax time.
A betting app or a simple spreadsheet works too. It’ll make things way less stressful when tax season rolls around, and you’ll be ready if you ever get audited.
Store digital copies of your betting records for at least three years, just in case the IRS comes knocking. If you’ve had some especially big wins, maybe keep them for up to seven years—just to be safe.
Honestly, professional tax software or a tax pro who knows gambling rules can be a game-changer. Sometimes, it’s worth paying for peace of mind and avoiding headaches down the road.
The Legal Evolution of Sports Betting Taxation
The landscape for sports betting in America changed big time after a 2018 Supreme Court decision. Suddenly, states could set up their own rules, and what used to be mostly illegal morphed into a regulated industry with a patchwork of tax laws.
This shift turned sports wagering into a whole new ballgame, with each state figuring out its own approach.
Impact of PASPA Repeal
The Professional and Amateur Sports Protection Act (PASPA) basically banned sports betting nationwide from 1992 until May 14, 2018. Then, in Murphy vs. NCAA, the Supreme Court struck it down as unconstitutional.
That ruling gave states the green light to legalize—and tax—sports betting however they wanted. Before that, legal sports betting was pretty much just Nevada’s thing, with a few exceptions.
Once PASPA was gone, states jumped at the chance to create new tax revenue. In just seven years, 38 states and Washington D.C. rolled out legal sports betting, each with its own tax setup.
States’ Rights and Regulatory Expansion
After PASPA got tossed out, states wasted no time jumping in to regulate sports betting on their own terms. The result? A messy patchwork of tax systems all over the map.
Most states landed somewhere between 10% and 20% tax on sports betting revenue. Then you’ve got places like Nevada and Iowa, where the tax is just 6.75%—honestly, that’s pretty low compared to the rest.
On the flip side, states like New Hampshire, New York, and Rhode Island went big, slapping on a whopping 51% rate. That’s a huge difference.
States aren’t just messing around with rates, either. Some split taxes between retail betting and mobile wagering. Take New Jersey—they charge 8.5% on retail bets, but if you bet on your phone, it’s 14.25%.
Illinois took a different route, bringing in per-wager taxes instead of the usual revenue-based model. It’s a bit all over the place, honestly.
These different approaches really show how each state is doing its own thing—some want to grow the industry with lower taxes, while others seem more interested in squeezing out as much tax revenue as possible, at least for now.
