Last updated on February 13th, 2025 at 09:37 am
A famous idiom by Benjamin Franklin says, “nothing can be said to be certain, except death and taxes.” For sports bettors and casino players in the U.S., the IRS wants to make sure this remains true for gamblers. A report from the Treasury Inspector General for Tax Administration (TIGTA), says the IRS has failed to collect taxes on gambling. Now that the report is out, is the IRS Coming to Collect Taxes from Gambling from individual players?
According to the report that came out last month, American Gamblers owe over $1 billion in gambling income taxes. Yes, it is a large amount but it is for the period between 2018 to 202. During that period of time 148,908 individuals got a W-2G form after obtaining a minimum of $15,000 in gambling winnings. However, they did not submit a tax return. The W-2G form is an IRS document that requires individuals to report specific gambling winnings.
Thus, what is the next step for the IRS (Internal Revenue Service)
Gambling Income Tax – What Players Need to Know
What is Gambling Income? Gambling income refers to any earnings that comes from games of chance or bets made on events with unpredictable results. This income is subject to full taxation and must be disclosed on your federal tax return as gambling income.
Therefore, gambling income includes money won from casino games lotteries, raffles, horse betting, bingo, Keeno, sports betting, betting pools and sweepstakes. Furthermore, it also includes the fair market value of any non-cash prizes like cars, vacations won from such games.
In specific situations, gaming establishments may have to withhold 24% of winnings for federal income tax purposes. This is done via the W-2G form that is given to the winner by the sportsbook and then given to the IRS. For those that operate a sportsbook with a pay per head in the US, this also applies to them.
For Americans that bet on sports with an offshore sportsbook and make a profit, the situation is trickier. This is because offshore sportsbooks do not declare their win to the IRS. Therefore, it is the responsibility of the bettor to declare their winnings to the IRS.
The amount of gambling income, after deducting the cost of the wager, must be reported on the federal tax return. The IRS stipulates that taxpayers who are not classified as professional gamblers must declare all gambling income. It should be done via “other income” on Form 1040, which is the standard form used by individual taxpayers.
Furthermore, shared gambling income, (refers to winnings among two or more individuals) must also be reported to the IRS.
Gambling Income vs Gambling Losses – Gambling losses can be reported on a federal tax return; however, certain limitations apply. It is important to note that losses exceeding the amount won cannot be deducted as a tax write-off.
IRS Coming to Collect Taxes from Gambling – How will they do it?
The TIGTA said that these gamblers who did not file their taxes have a total of $13.2 billion in gambling winnings. This amount could have potentially increase federal tax revenue by around $1.4 billion. These figures encompass income from various sources. It includes commercial and tribal casinos, state lotteries, sports betting, online gaming, and other forms of gambling activities.
Needless to say, that is an amount of money that the IRS cannot simply ignore.
Thus, the question is how the IRS will be able to collect gambling income taxes in the future. So, is the IRS Coming to Collect Taxes from Gambling any time soon?
The TIGTA has a few ideas on how it could collect these winnings.
Here are some of the recommendations they gave to the IRS for more accurate Gambling Income collection. They said the IRS should Initiate appropriate enforcement measures, commencing with the issuance of notices, targeting the group of non-filers.
Examine the cohort of non-filers with gambling winnings for the tax years 2018 to 2020 that were not captured by the Individual Master File Case Creation Non-filer Identification Process, and implement suitable enforcement actions as necessary.
In addition, they think that the wager codes should be broaden. Thus, it would explicitly encompass sports betting and utilize these codes as a mechanism to detect potential noncompliance.
Either way, for those looking to become an online bookie, this will mean more paperwork for them1
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