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Bankrate's 2010 Tax Guide
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Super Bowl winnings are taxable income

Got some money riding on the Super Bowl? You are not alone. Every year the National Football League showdown not only is the big television ratings winner, it also is the biggest gambling day of the year.

Many Super Bowl bets are just friendly wagers -- a dollar in the office pool or a good-natured bet with your "Who Dat?" neighbor who never gave up on the Saints.

But other NFL fans take the game more seriously and hand over big bucks to bookmakers -- legal and not-so-legal.

The economy has taken a toll, even on bettors. In Nevada, betting on sports is big business, and last year, Las Vegas bookies alone reported that Super Bowl wagers dropped more than 11 percent. The $81.5 million bet in Sin City on the 2009 NFL championship was the lowest amount of money wagered on the title game since 2004.

But almost $82 million is nothing to sneeze at. And that's just a drop in the sports betting bucket. Nevada's legal sports wagering represents less than 1 percent of all sports betting nationwide. And wager watchers say when it comes to the Super Bowl, billions are bet globally on the sport's biggest game, legally and otherwise.

All these Super Bowl wagers spotlight a persistent Internal Revenue Service problem: tracking and taxing gambling winnings. It's a challenge the agency faces daily, because many people don't realize that gambling winnings, even the illegal payouts, are taxable. Of those who do, a good portion simply choose to ignore the tax law.

Admittedly, the IRS is playing catch-up here. While the U.S. income tax is a 19th century creation, gambling has been around at least since man was able to record his activities. Dice almost identical to those used on today's gaming tables have been recovered from Egyptian tombs, and the Chinese, Japanese, Greeks and Romans all were known to play games of chance as early as 2300 B.C.

Nowadays, in addition to the well-publicized offerings of Las Vegas, Reno, Nev., and Atlantic City, N.J., betting is commonplace throughout the United States. The choices range from off-track betting parlors to tribal bingo games to riverboat casinos to state-operated lotteries.

Online gambling down, but not out

Then there's online gambling. In 2005, professional gambling and entertainment research firm Christiansen Capital Advisors estimated that nearly 23 million people gambled on the Internet, with approximately 8 million of those gamblers from the United States. The amount of revenue generated by those betters five years ago: almost $12 billion.

Christiansen estimates that in 2010, online bets will account for more than $24 billion in revenues for the companies taking the electronic wagers.

It's easy to see why the numbers have grown so much. Type "online gambling" into any Internet search engine and within seconds you'll have a list of hundreds of thousands of potential gambling sites. This is in spite of the Unlawful Internet Gambling Enforcement Act, which was passed without much fanfare and signed into law in late 2006 in an effort to restrict U.S. gamblers' access to these typically foreign-based Web sites. It is now a federal crime for U.S. banks and credit card companies to process Internet-bet payments.

Some companies have curtailed their U.S. betting operations, but in reality the law has had little effect. Online gambling sites and their cyberpatrons are adapting. All online gambling operations now carry a disclaimer alerting visitors that although a wagering site may be operating legally at its location, it may still be illegal for the patron to wager from his or her location.

To get around payment hurdles, some sites have introduced dedicated debit cards and alternative, although circuitous, e-payment and electronic wallet services. It's a good bet that millions of U.S. customers will be utilizing them Super Bowl Sunday, the biggest global betting day of the year.


Because of the pervasiveness of online wagering, some lawmakers think that rather than trying to keep beating them, it's time to join -- and tax -- the online operations.

In the last congressional session, a couple of bills were introduced that would allow the U.S. Treasury Department to license and regulate Internet gambling operators. In return, those cyber-betting parlors would be able to accept bets and wagers from U.S. residents as long as the companies maintained effective protections against underage gambling, compulsive gambling, money laundering and fraud. The online betting firms also would have to abide by prohibitions and restrictions on types of gambling outlawed by states and Indian tribes.

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