The U.S. Supreme Court removed the 1992 federal ban and ruled that states could individually determine which form of gambling was legal, so sports betting was only legal in the United States in 2018.

This opens floodgates for state legislatures to decide whether sports betting is allowed. Currently, 40 states and the District of Columbia authorize this practice, and 34 allow online sports betting, according to the American Games Association.

This has a tax impact on millions of gamblers who are also taxpayers. According to tax experts, there is no ambiguity here.

“Broadly speaking, the prize money for sports betting is taxable income,” April Walker, senior manager of tax practice and ethics at the Institute of CPAs, said.

Sports betting bonuses are taxed based on IRS’ gambling income and losses. If your bonus totals $600 or more and is at least 300 times the amount you bet, you will need a payer (such as a casino) to issue a W-2G form to you.

Walker notes that while it is the payer’s responsibility to provide forms, it is still the responsibility to report and ensure that taxes on those sports betting bonuses are paid, whether you receive them or not.

If you are dealing with a mobile sports gambling provider, such as Draftkings or Fanduel, the reporting standards vary. Baker Newman Noyes, a New England-based accounting firm. If you reach a net income of $600 or 300 times your original bet, you can also get a 1099-MISC form from an online sports shaky organization that will report net income from the previous tax year. Net income will be calculated as your cash bonus minus any cash entrance fee and add any cash bonuses obtained from the platform.

Individual tax filers must report total gambling income as “Other income: gambling” in line 8B of Schedule 1,1040. The only exception is that if you submit as a professional gambler, it means that someone “works in sports bets primarily for profit rather than as a hobby”, Financial Planning Magazine. In this case, the applicant will use Form 1040, Schedule C to report the profit and loss of the business, and they will win the bonus as income and be able to deduct their losses directly. Self-employed applicants (in this case professional gamblers) must pay self-employed taxes at 15.3%, half of which may be deducted to deduct Social Security and Medicare.

To answer the tax rate question, we have to work backwards. Walker said taxpayers who win the bonus over $5,000 and 300 times the amount of bet will automatically have 24% of the total amount withheld by the payer. This rate could be higher in states with additional income taxes, in which case the federal rate of 24% will be withheld above the state's personal income tax rate.

However, this withholding does not ensure that you have paid the required taxes when you need to file income taxes. The rates range from 10% to 37%, depending on your total income, so depending on the range of taxes you end up at the end of the tax year, you either receive a refund or have to pay a higher amount from the bonus.

Read more: How taxes work

Perhaps the most critical and confusing part of understanding how to report gambling income on a federal income tax return is your losses. According to Walker, the correct approach comes down to what the IRS calls “conference.” The concept comes from the 2015 IRS notification on slot games, indicating that the total victory and losses need to be calculated before the date of production. Every day counts as a separate meeting, so you will need to calculate the end amount of each session or day, rather than a net loss, but rather determine which days are losses and which days end with bonuses.

Nevertheless, the only way to offset the loss of gambling bonus is if you list the deductions itemized rather than taking the standard deduction, For single tax filings for 2025 tax, that's $15,000. Using the session method, you can add the total loss to Schedule A, line 16 as gambling loss.

In state income tax, whether you can list deductions to offset bonuses depends on the state you filed. Nine states, including North Carolina, Connecticut and Rhode Island, do not allow itemized deductions for gambling losses, according to an article in the Journal of Financial Planning.

Even professional gamblers can only offset their total bonus and reach zero through losses. Walker said the loss does not exceed the total amount of the bonus and there is no tax refund.

To minimize sports betting taxes, the key is to have obvious records in all bets, when and where, evidence of what they occur (such as receipts and tickets), as well as your bonuses and total losses. This can be especially useful if you find yourself under review by the tax authorities.

"Gambling has been around for a while, so the rules related have not changed," Walker said. "The difference is that there may be more people doing this on a regular basis every day, and I encourage them to understand the importance of doing bookkeeping so that they don't have to scramble to delineate after the facts and whether they can itemize and take advantage of all the losses."