Paying Federal Income Tax On 2021 Sports Betting Winnings

Posted on December 18, 2021

The 2021 calendar year is coming to an end, and it’s nearly tax time again in Tennessee. If you’ve participated in any sports betting this year, you might be wondering whether you’re required to report those winnings on your upcoming federal income tax return, due on April 15, 2022.

The short answer is, yes.

For the longer answer, keep reading. Here’s everything you need to know about paying taxes on your 2021 wagering winnings.

Do I have to pay income tax on my 2021 sports betting wins?

If you’ve previously won big while playing Mega Millions, Powerball or any other Tennessee Lottery game, you might already be familiar with the process of reporting gambling income.

But chances are, this is the first time you’re making such an addition to your annual return.

Whether you’ve won while wagering on sports or you collected a lucky sum from the Tennessee Lottery, you best believe Mr. Tax Man will be expecting his share.

Tennessee sports betting officially became state-regulated with its launch in Nov. 2020. Consequently, licensed operators are required to abide by certain standards and report their revenue to the federal government.

This means the IRS already knows how much you’ve profited — even if you don’t report the full extent of those earnings.

Understanding how winnings are taxed in Tennessee and reporting your gambling income correctly the first time can prevent the IRS from showing up unannounced later on.

How much can I expect to pay?

Tennessee itself doesn’t take anything from your sports betting earnings. Instead, the state takes its cut of this budding industry from your losses in the form of a 20% privilege tax.

When it comes to the federal level though, the IRS comes calling on bettors.

So, what exactly are you required to pay?

As a general rule of thumb, if you’ve won more than $600 off your wagers in a single year and those earnings are equivalent to at least 300 times your original wagers, you’re required to pay taxes on the sum.

If a winning wager amounts to $5,000 or more, sportsbooks will automatically withhold 24% from your payout.

When it comes to reporting winning wagers lower than that, though, it’s your direct responsibility.

If a sportsbook has already withheld a percentage of your earnings, you shouldn’t assume you have nothing left to pay.

The specific amount you’re required to forfeit over differs for everyone. Your exact rate will depend on a variety of factors, such as your overall income and number of dependents.

In reality, you could end up owing more than what was originally taken out. Or you might even be eligible for a refund!

Reporting your 2021 winnings come tax time

After you’re done celebrating your big year of winnings, it’s time to add up your victories, accept your losses and report numbers to the federal government.

You should expect to receive something called a Form W-2G from each sportsbook where you’ve won wagers this year. If you’re a fantasy sports player, you can instead expect either a Form 1099-MISC or 1099-K.

To begin the process, first gather together any and all forms you’ve received from sportsbooks. Then, begin recording the information on your Form 1040.

What if I don’t receive a Form W-2G?

If a sportsbook hasn’t sent you the appropriate forms, this doesn’t mean you’re off the hook. You’re still required to report all applicable winnings on your federal income tax return.

You also have the option of contacting the sportsbook directly. A simple issue with the address on file can oftentimes be the culprit.

A detailed list of your wagering activity can be found within your account profile at each sportsbook. You can use this to calculate your total profits and losses.

Gambling losses are (sometimes) tax deductible

In some scenarios, bettors can reduce the total amount owed in taxes by writing off their gambling losses. In order to opt for this option, however, deductions must be itemized.

This isn’t quite as simple as adding up all your winnings, subtracting your losses and reporting the resulting number. Both your winnings and your losses must be accounted for on the final return if you intend to itemize.

Even if you ultimately lost more than you won during the year, you’re still required to report your winnings if they exceed the minimum $600 threshold.

The two caveats to this are: you can only deduct as much as you’ve won, and you can’t subtract expenses from that amount.

Other helpful hints:

  • Those that are married and file a single joint return can combine their gambling winnings and losses
  • It’s good practice to keep all relevant paperwork filed away for a minimum of five years. That way, if the IRS comes knocking at your door, you’ll have documents to substantiate your claims.
  • Deductible gambling losses are generally reported as a miscellaneous itemized deduction
  • Professional gamblers report gambling income and losses as a Form 1040 Schedule C

What about paying income taxes on other gambling activity?

In the eyes of the IRS, all gambling winnings — regardless of whether they’re legal in Tennessee or not — are considered taxable income.

This is true whether you win comes in the form of cash or as a physical item such as a vehicle, house or vacation. Any income from out-of-state casino and sports betting ventures must also be accounted for.

And if you thought you were off the hook for funds won through illicit channels such as an offshore sportsbook, think again.

The IRS wants to know about everything.

If you’re uncertain about how to report your sports betting winnings on your 2021 income tax report, it’s wise to consult a knowledgeable tax professional. An advisor will be able to guide you through the process, all the while suggesting any potential strategies for reducing your overall tax burden.

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Alec Cunningham

As a college athlete, Alec Cunningham played Division II golf at Tusculum University. She graduated in 2015 with a bachelor’s degree in Journalism and Professional Writing. She then returned to her love of written word in 2000 after working in the music industry as a concert promoter, tour manager and artist developer. As a journalist, she's covered a variety of topics and currently specializes in Tennessee online sports betting and Virginia casino news. She served as a panelist at this year's All American Sports Betting Summit, discussing the ever-evolving role of women in the gambling industry.

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