Win a Super Bowl bet? It's taxable
- Illegal sports wagers are estimated to be as much as $380 billion per year.
- Money is withheld from winnings of sweepstakes, wagering pools or lotteries.
- Tax filing procedures differ for recreational vs. professional gamblers.
America is a nation of risk takers, so it's no surprise we love games of chance. That's even more evident each year when the NFL's big event, the Super Bowl, rolls around.
The Super Bowl is the most gambled-on sporting event in the United States, with more than $100 million wagered on the game in some years. And that's just the legal betting at sports books in Nevada, so far, where federal law allows sports gambling.
American Gaming Association data, complete through 2011, show legal sports wagering in Nevada that year totaled $2.88 billion. But that figure is dwarfed by illegal bets. The National Gambling Impact Study Commission estimates illegal sports wagers amount to as much as $380 billion annually.
If the gambling study estimate is even remotely accurate, the U.S. Treasury is missing out on an enormous amount of revenue since gambling winnings, whether obtained legally or illegally, are taxable.
But good luck, Internal Revenue Service collections agents, on getting your hands on ill-gotten gambling gains.
The federal tax agency has enough trouble collecting from legal bettors. Many people don't realize gambling winnings are taxable income. And even if the winners know that, a good many simply choose to ignore the tax law.
What the IRS knows
This skirting of tax laws is possible because the IRS doesn't know about every bet, and it is only aware of the big winners.
Legal betting operations -- state lotteries, casinos and horse-racing tracks -- are regulated and that means there are rules for reporting when players are paid.
States with gaming
|Commercial casinos||Colorado, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Nevada, New Jersey, Ohio, Pennsylvania, South Dakota, West Virginia|
|Racetrack casinos||Delaware, Florida, Indiana, Iowa, Louisiana, Maine, Maryland, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, West Virginia|
|Tribal gaming (casinos, bingo, pulltabs, etc.)||29 states|
|Lotteries||43 states plus the District of Columbia|
|Parimutuel wagering||40 states|
|Charitable gaming||47 states plus the District of Columbia|
Source: American Gaming Association, National Indian Gaming Association
In some cases, the IRS gets its portion when winners are paid. Twenty-five percent is withheld from winnings of more than $5,000 from any sweepstakes, wagering pool or lottery or from betting 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 still must give the gambling establishment your tax ID, i.e., your Social Security number. If you refuse, the casino can assess backup withholding of your jackpot at a 28 percent rate.
And with the popularity of poker, the IRS started demanding 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 card game winners are including their winnings on their annual tax returns.
Regardless of whether money is withheld, when a casino or other betting operation gets your tax ID, your winnings show up on a Form W-2G.