According to the American Gaming Association, 68 million adults are planning to wager up to $15.5bn this year during March Madness. As a result, a Jackson Hewitt Tax Services survey has found that 62% of US taxpayers are unsure how to report winnings from sports bets and other gambling.
All income over $600 must be reported, but 48% of those surveyed falsely believe that cash won from sports bets is only taxable if sports betting has been legalized in that state. In accordance with IRS reporting rules, all earnings and winnings are fully taxable and must be reported on Form 1040 (in both state and Federal tax returns) as ‘other income.’
Mark Steber, Chief Tax Information Officer at Jackson Hewitt, said, "As sports betting becomes more available and accessible to Americans, it is important for taxpayers to know the intricacies of federal and state tax law.
“If these earnings are reported incorrectly, or not at all, there is a major risk for the taxpayer: they could be penalized from the IRS, their state, or even audited."
Jackson Hewitt also urges players to keep organized records of winnings and losses. Gambling losses may be deducted if the taxpayer itemizes the deductions on Form 1040. The losses deducted cannot exceed the winnings.
Taxpayers may receive a W-2G if they are betting through an official sports betting organization. However, the burden of proof is on the taxpayer, whether they receive this form or not.
A player’s income tax bracket will ultimately determine if the taxpayer will owe more. Additionally, taxpayers who win in a state they don't live in may have to file a tax return for their winnings to that state.