Sports Gambling: How to Handle 2022 Taxes

Ready to pay up on your sports gambling winnings?

The American pastime of gambling on sports is only getting more popular. A recent study by The Nielsen Company showed that 46% of American adults (106 million people) have at least some interest in sports betting. In the past 12 months, about 20% of Americans have personally bet money on sports. Currently there are 35 states that have legalized sports gambling.

And with the Supreme Court's 2018 decision to strike down a federal law that had prohibited sports gambling, that number is likely only going to grow. So, what does that mean for paying taxes? That is probably the last thing on your mind as you pick your favorite players and teams. But before you get in trouble with the IRS, here's what you need to know about gambling and taxes in 2022.

Gambling winnings are taxable income

In the eyes of the IRS, gambling winnings are taxable income. That means that you'll need to report your winnings on your federal tax return. So does that mean you have to report the $5 you won from your roommate? Technically yes. It must be listed as "other income" on your tax return.

If you receive $600 or more in gambling winnings, the payer is required to issue you a Form W-2G. If your winnings are more than $5,000, then the payer may be required to withhold 28% of the proceeds for federal income tax. If you did not provide your Social Security number, then 31% will be withheld.

You can deduct your gambling losses

The good news is that you can deduct your losses up to the amount of your winnings. So if you won $1,000 but lost $500, you would only need to pay taxes on the $500. You can't deduct, however, more than the amount of gambling income you reported on your return. So if you won $1,000 but lost $2,000, you can only deduct up to $1,000. You can claim your gambling losses as "Other Itemized Deductions."

You can deduct gambling losses as long as you itemize your deductions and keep track of all your winnings and losses. This can be done by keeping a gambling journal or using software that tracks your bets. That way, come tax time, you'll have everything you need to properly report your income and deductions.

State taxes on gambling winnings vary

While federal taxes on gambling winnings are relatively straightforward, state taxes are a different story. That's because each state has its own laws regarding gambling and taxes. So, if you live in a state where gambling winnings are taxed, you'll need to pay attention to the rules there.

For example, in Nevada (one of the states where gambling is legal) gambling winnings are taxed at 6.75%, the lowest in the country. However, in Rhode Island, New Hampshire, and New York, gambling winnings are subject to 51% in taxes.

Gambling on sports is becoming more and more popular in the United States thanks to the Supreme Court's 2018 decision to strike down a federal law that previously prohibited sports gambling. That means that more and more people are going to be faced with the task of paying taxes on their gambling winnings come tax season. If you're planning on getting into sports gambling, it's important to know how to handle your taxes properly.