3 Key Considerations For Determining Your Sports Gambling Taxes

The One Big Beautiful Bill Act was signed into law by President Donald Trump. Although it narrowly passed both the House and Senate, the bill significantly alters most American tax liabilities, most notably by extending the tax cuts passed under the Tax Cuts and Jobs Act of 2017. As I reported in Forbes, one new provision introduced and passed relates to the taxation of gambling. Most notably, gambling losses are no longer 100% deductible, raising alarms across the Vegas Strip and for mobile bettors nationwide. This article discusses how your tax liability will change from this year to next year, when this provision goes into effect, as well as three key considerations as you determine your sports gambling taxes after the Big Beautiful Bill.

Sports Gambling Winnings & Tax Deductions

Section 61 of the Internal Revenue Code defines income as all-encompassing. This definition means that when you win money betting on sports, you have income, and you will owe taxes on that income. However, for the typical sports bet, you only have about a 50% of winning. Very few sports bettors only win. In fact, many high-volume sports bettors place significant wagers throughout the year, hoping to win at least 52.4% of the time to be profitable, according to bettingpros.

In a traditional business environment, business owners generate revenues and are able to deduct the costs of running the business. Thus, these owners only pay taxes on their net income. This treatment differs from sports bettors because the deduction for gambling losses is what is called “below-the-line”, meaning that it is only taken if the bettor has itemized deductions greater than the standard deduction ($15,750 for single taxpayers, $31,500 for married taxpayers). Bettors who take the standard deduction do not have the ability to deduct gambling losses. Among those who do itemize, the additional income from sports betting wins (even if there are corresponding losses) have the potential to increase their income to the point where they are phased out of certain deductions and credits.

Illustrating The Impacts Of The Big Beautiful Bill On Taxes Owed On Sports Betting

One key change in the One Big Beautiful Bill Act is that gambling losses go from being 100% deductible to 90% deductible. To help illustrate this impact, let’s consider a sports bettor who makes $10 a day, every day, betting on sports throughout the year. However, the way this bettor reaches $10 is by winning $110 and losing $100. At the end of the year, the bettor has won a net amount of money of $3,650 by way of winning $40,150 and losing $36,500.

In 2025, this bettor will increase their gross income by $40,150 (Form 1040, Schedule 1) and then increase their deductions by $36,500 (Form 1040, Schedule A). The net effect will be $3,650 more in taxable income. The amount this taxpayer will owe in taxes varies depending on their other income. In particular, this $3,650 is extra income, meaning that it will be taxed at the taxpayer’s tax bracket to which they belong. In total, there are seven tax brackets, ranging from 10% (for taxpayers who earn less than $11,925 if single or $23,850 if married) to 37% (for taxpayers who earn more than $626,350 if single or $751,600 if married). Thus, the taxpayer will pay between $365 and $1,351 in taxes on the gambling income in 2025. After tax, the taxpayers’ take-home income from gambling will range between $2,299 for the highest-income taxpayers and $3,285 for low-income taxpayers.

By 2026, the situation will become even more complicated. Now, only 90% of the $36,500 in losses can be deducted. This change means the deduction will be lowered to $32,850. Even though the taxpayers’ extra income is still $3,650, they will have to pay taxes on that income as though it were $7,300. For the lowest-income taxpayers, they will now owe $730 in taxes, reducing their take-home earnings from $3,285 to $2,920. For the highest-income taxpayers, they will now owe $2,701 in taxes, dropping their take-home earnings from $2,299 to $949. Put differently, the tax rate for the lowest-income taxpayers on this income increases from 10% in 2025 to 20% in 2026. The tax rate for the highest-income taxpayers increases from 37% in 2025 to 74% in 2026.

3 Key Tax Issues For Sports Bettors To Consider Following The Big Beautiful Bill

(1) Most Taxpayers Will Not Receive Tax Forms For Sports Gambling, But They Still Need To Report Their Activities

High-volume and earning gamblers receive a W-2G, reporting their earnings and losses for gambling activities. However, these forms are rarely issued for the typical sports bettor. The reason why is that the providers (i.e., DraftKings, FanDuel, Underdog, etc) are only required to provide these tax forms under two circumstances:

1. The bet generates earnings of at least $600 and 300 times the amount of the wager.
2. The bet generates net winnings of more than $5,000

For the casual bettor exemplified above, the $3,650 in winnings will need to be self-reported. Just because tax forms do not exist does not mean that the income can be ignored. In fact, according to History, it is precisely this type of tax evasion that led notorious gangster Al Capone to be sent to prison.

The change from 2025 to 2026 is that a breakeven sports bettor (or even someone who loses a small amount) will now have a tax liability. Thus, not reporting these activities may have previously been in line with the spirit of the tax law, which may no longer be the case.

(2) Taxpayers Will Also Owe Taxes At The State Level For Sports Betting

Oftentimes lost in the discussion of taxes owed is that the majority of states also tax income. At the high end, high-income taxpayers in California will pay a 13.3% tax on their income. As most states conform to federal definitions for determining income and deductions, this means that the tax rate for gambling income has the potential to be even higher than the 74% rate illustrated in the example.

However, an even more dire consideration is that some states do not even allow any deduction for gambling losses. These states included Connecticut, Illinois, Indiana, Kansas, North Carolina, Ohio, Rhode Island, and Wisconsin, according to The Tax Adviser. The article highlights other states, such as Massachusetts, Michigan, and West Virginia. However, these states have since passed laws allowing the deduction. While not all states listed allow online sports gambling, if and when they do, taxpayers will need to pay taxes on all their winnings without being able to deduct their losses, increasing the tax burden even more for a typical sports bettor.

(3) Congress Is Actively Trying To Amend The Big Beautiful Bill’s Gambling Deduction Provision

The provision to limit sports gambling losses to 90% in the Big Beautiful Bill becomes effective in 2026. Already, we are seeing congressional leaders like Dina Titus of Nevada bring forth legislation to reverse this rule. In an interview with The Athletic, Representative Titus claims to have bipartisan support for removing this limitation.

This proposed bill has merits. After all, the Joint Committee on Taxation estimates that the financial benefits of this provision tally a mere $1.1 billion. Furthermore, as discussed by The Athletic, the $1.1 billion assumes that taxpayers will continue with their regular activities and simply pay more taxes. However, a question arises of what happens to an activity when the tax rate balloons from 37% to 74%. Most economic theories on taxation suggest that taxpayers will simply forgo the activity rather than bear the additional burden of taxation. Playing out this scenario, the $1.1 billion estimated to be collected would be substantially smaller than anticipated, and economies that revolve around gambling will be decimated due to the lower volume.

While there is still almost a half year until the gambling provisions in the One Big Beautiful Bill Act go into effect, it is ultimately up to Congress to determine whether sports bettors will face this increased tax burden starting in 2026.