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

Such legislation is dropped in the hopper periodically, and realistically it's not going anywhere soon, given the other issues facing Congress. But as Washington, D.C., considers ways to pay for new services without adding to the federal deficit, expect this taxing online betting to pop up again.

So many events, so many bets

Combine all the availability of gambling with Americans' love of athletics, and betting on sporting events has arguably become the true national pastime. If you want to keep your sports wagering domestic, legal betting on single-game athletic events is allowed only in Nevada.

States with gaming
Commercial casinosColorado, Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri, Nevada, New Jersey, Pennsylvania, South Dakota
Racetrack casinosDelaware, Florida, Iowa, Louisiana, Maine, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, West Virginia
Electronic gaming devices
(e.g., video lotteries, slot machines, bingo or poker games at casinos and/or bars, restaurants or other licensed establishments)
37 states
Tribal gaming
(casinos, bingo, pulltabs, etc.)
29 states
Lotteries43 states plus the District of Columbia
Parimutuel wagering40 states
Charitable gaming47 states plus the District of Columbia
Source: American Gaming Association, National Indian Gaming Association (May 2009 data)

The dollars add up because there are countless ways to get a piece of the action. The Indianapolis Colts entered the week before the game as 5-point favorites over the New Orleans Saints, but wagers won't be placed just on the eventual winner or loser. You could bet on whether Peyton Manning or Drew Brees will complete a pass first, which receiver will catch that pass, who will rush for the most yardage (team and individual), who will get the first sack, how many sacks there will be. Even who will win the coin toss is open for wagers.

Known as prop bets, short for proposition bets, there are hundreds of unique ways to gamble on the big game. Essentially, if it happens -- or could happen -- in a game, the Nevada sports book operation will take a bet on it.

But casino bets aren't a real concern for the IRS. The tax man has a way to track legal athletic wagering.

It's a dicier tax-collection proposition, however, when it comes to bets placed at increasingly popular offshore sports-betting operations, dollars dropped into friendly office pools and illegal wagers handled by bookies. These bets, according to the American Gaming Association, represent more than 99 percent of all sports betting nationwide. The National Gambling Impact Study Commission estimates that translates to as much as $380 billion annually in illegal wagers.


For whom the tax bells toll

In legal betting operations -- state lotteries, casinos and horse racing tracks -- taxes are regulated. One of the government agencies that has a say in these operations is the IRS. As soon as the bells go off when someone hits the slots jackpot, a casino representative is on hand to the get winner's tax information.

In some cases, Uncle Sam even gets his cut (25 percent on most winnings) before you get your payout. That's the case for winnings of more than $5,000 from any sweepstakes, wagering pool or lottery; withholding also is collected on proceeds that are 300 times or more the amount of the bet. Gambling winnings from bingo, keno and the slots are not generally subject to withholding, but you're still required to provide your tax ID. If you refuse, the casino can assess backup withholding of your jackpot at a 28 percent rate.

The IRS also started getting reports from poker tournament sponsors when tournament winnings exceeded $5,000. The reporting requirement, aimed at poker tournament sponsors, including casinos, helps the IRS ensure that card game winners are including their winnings on their annual tax returns.

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