How Much In Taxes Do You Pay On Sports Betting?

By now, you understand the answer to this question is—unfortunately—“Yes.” That said, not all taxes and fees are created equal.

In some cases, all sports bettors are required to pay the same rate, whether they’re casual bettors who wager/win modest amounts or professionals who earn their living gambling on sports. In other cases, the taxes and fees associated with sports betting fluctuate based on everything from how much you bet and how much you win to where you place your bets and even how much you lose.

Let’s examine three primary sources for the fees and taxes charged to sports bettors.

Sportsbook Commission

Almost every time you place a bet at a sportsbook, you’re being charged a fee (and you might not even realize it). This fee is known by many names in sports betting lexicon, the most common terms being “vigorish,” “vig” and “juice.”

For simplicity’s sake, think of the vig as the money a sportsbook charges for accepting your bet.

Wait—I have to pay a fee to risk my money? That’s crazy!

We certainly understand the sentiment, but, as they say, them’s the rules. And really, it’s no different than a brokerage firm charging a fee to manage your stock investments/portfolio.

So how does the vig present itself? It depends on the type of bet.

When betting point spreads—which is when bettors either “give” or “receive” a certain number of points that are applied to the final result of a game/event—the vigorish comes in the form of odds. In point spread betting, these odds are most often displayed as -110.

When betting the moneyline—which is nothing more than choosing which side will win a game/event, regardless of victory margin—it’s all about the odds. And these odds can vary greatly depending on the matchup or event you’re betting on.

For this exercise, let’s stick with -110 odds and explain what that means:

For every $10 you want to win, you have to wager (risk) $11; for every $100 you want to win, you have to wager $110; for every $1,000 you want to win, you have to risk $1,100; and so on.

This 0.91% fee—calculated by dividing 10 by 11 (or 100 by 110)—is the juice.

Now the good news is, if you win your point spread bet, the vig is returned to you along with your winnings. (So if you make an $11 bet at -110 odds and win, you will get back $21.) The bad news? If your bet loses, that extra $1 stays with the sportsbook.

As the size of your wagers increases—be they point spread bets or moneyline bets—so does the vig amount you pay. So while that 0.91% fee may not seem like much, it adds up quickly over time. Think of it this way:

Every time bettors lose a $1,100 bet, they lose $1,100. But every time sportsbooks lose a $1,100 bet, they only lose $1,000.

So if a bettor makes 10 wagers of $1,100 each and goes 5-5 on those wagers, the sportsbook turns a profit of $500, and the bettor is $500 in the hole. And there’s your cost of doing business.

Federal Taxes

Enough with theoretical negative outcomes for sports bettors. Let’s discuss what happens when you end up on the right side of the bettors vs. books battle.

It’s undoubtedly a thrill whenever you walk into a brick-and-mortar sportsbook, hand over your winning ticket and receive a thick stack of cash. Or whenever you log into your betting app and notice your balance is substantially higher than it was yesterday.

Alas, here’s a little-known, not-so-fun fact about those winnings: They must be reported as income on your federal tax return. And they might be taxable.

According to the IRS, winnings from sports betting—or any form of gambling, including horse racing and lotteries—must be listed as “other income” on your tax return. (At this point, you’re likely asking, “So if I win $10 from a bet, I have to report it as income?” Answer: Technically, yes.)

Now, reporting this extra income does not necessarily mean you have to pay taxes on it. A federal tax hit only comes into play if your gambling winnings reach $600 or more. Also, the rate at which you’re taxed varies based on how much you win. However, if you pocket $5,000 or more in winnings, you might have to pay Uncle Sam 28% of the total amount.

Also affecting the federal tax rate on gambling winnings: your overall individual (or, if married, household) income.

The one (possible) silver lining on this topic: Gambling winnings can be written off against gambling losses, up to the total amount of the winnings. For instance, if you win $10,000 betting on sports but lose $12,000, it’s possible you can avoid paying any gambling-related income taxes (since you lost more than you won). Or if you won $10,000 and lost $6,000, your taxable income from gambling could be reduced to $4,000.

Consider consulting an accountant or tax attorney on gambling-related taxable income and potential deductions. But the main point is this:

If you even have a modestly successful year betting on sports, be prepared to earmark some of that cash for the federal government. And depending on the state where you win your loot, you might have to sock away a little more.

State Taxes

As if the federal government dipping into your piggy bank wasn’t painful enough, it’s possible state officials might stick their fingers in there, too. And it doesn’t necessarily have to be the state where you reside.

Gambling winnings usually are subject to state taxes only in the jurisdictions where the winnings were earned. That’s important to understand since state income tax rules and rates vary in all 50 states.

So if, for instance, you live in California and win money betting sports in Nevada, you wouldn’t have to pay state taxes on those winnings. Why? Because even though California collects state income taxes, Nevada doesn’t.

Conversely, if you live in Nevada, take a vacation to New York and hit a couple of big bets while there, you could receive a tax bill. The reason: Like California and most other states, New York charges state income taxes.

So is it better for your bottom line to wager in states like Nevada, Washington, South Dakota and Wyoming—four places where sports betting is legal and there are no state income taxes? Sure. Is it practical? Not really.

A final word about state taxes related to gambling winnings: While state income tax structures differ from state to state, the percentage of the tax hit is much less than what the federal government charges.

Still, if your sports betting winnings reach a certain threshold and were earned in a place where state income taxes are on the books, you’ll owe something to that state (on top of whatever the IRS charges).

As one of the most prominent sportsbooks in the U.S., DraftKings charges customers “juice” on virtually every bet—it’s how all sportsbooks maximize profitability. And bettors who win money at DraftKings are subject to the same federal tax laws as they would be at any other sportsbook across the country.

State taxes, as we’ve already noted, are a bit different—again, whether or not you might owe state taxes depends on the state where you earned your winnings. Just know that state and federal tax laws aren’t sportsbook-specific.

Like DraftKings, FanDuel is a massive player in the sports betting market, with sportsbooks operating in multiple states. And, like DraftKings, FanDuel customers are subject to the same federal and state tax rules and regulations as any other sportsbook.

Put it this way: If you won an equal amount of money at DraftKings and FanDuel (or any of its competitors), your winnings would be reported and taxed the same.

At this point, you’re probably saying, “If my winnings are subject to federal and state taxes, what about the sportsbooks?” Don’t worry, they’re required to pay their fair share, too.

Tax revenue has been the primary motivator for the mass expansion of sports betting across the United States. Since a U.S. Supreme Court ruling in May 2018 permitted states to legalize sports betting, dozens of states have jumped into the game.

While these states have passed legislation with their own specific rules, regulations and taxation requirements, the basic message has crossed all borders: “We’ll allow sports betting here, but if you want to operate a sportsbook in our state, it’s going to cost you.”

This cost comes in the form of licensing fees (sportsbooks apply for a limited number of licenses, and those selected have to cut a check to the state), as well as taxes on earned revenue.

Like bettors and state taxes, sportsbooks are subject to different licensing fees and tax percentages depending on the state. This explains why sportsbooks fight hard to set up shop in some states (where the fees and taxes are deemed reasonable) and not others (because the cost/benefit ratio is out of whack).

Regarding taxes on sportsbook operators, it’s important to note this distinction: Only revenue is taxable. So if a sportsbook takes in $500 million in sports bets but pays out $470 million in winnings to bettors, only the remaining $30 million is taxed.

Also, many states allow sportsbooks to deduct money from online betting promotions—that is, free bets offered to online customers. This can shrink a sportsbook’s overall revenue numbers and, thus, its corresponding tax bill.

Where Does Sports Betting Tax Revenue Go?

The answer to this question depends on the state.

Some jurisdictions earmark most (if not all) sports betting-related tax dollars for just one purpose—for instance, to support public education or boost funding for law enforcement. In other states, the revenue collected from sportsbook operators is spread across multiple fronts. This often includes mental health and responsible gaming initiatives.

Because no one state brings in the same revenue from taxes and licensing fees, the amount of money redirected to public programs differs. An example:

Nevada charges a flat 6.75% tax on all gambling-related revenue, while Colorado, Virginia and Washington, D.C. charge a 10% flat rate. But in New York—which brings in more sports betting revenue than any other state—sportsbook operators must pay 8.5% on all revenue earned at retail establishments and 13% on all profits from online wagering.

One thing that is uniform across the board: All U.S.-based legal sportsbooks must pay the states where they operate a certain percentage of tax on their revenue. That’s not the case with offshore sportsbooks, which don’t pay U.S. taxes (nor are they subject to any U.S. regulations).