11-05-2021

Online Sports Gambling And Taxes

Pennsylvania lawmakers deserve some credit for putting their state on the leading edge of this trend toward sports betting.

Online Sports Gambling And Taxes

The tax code requires institutions that offer gambling to issue Forms W-2G if you win: $600 or more on a horse race (if the win pays at least 300 times the wager amount); $1,200 or more at bingo or on a slot machine; $1,500 or more at keno; $5,000 or more in a poker tournament.

  • Oct 09, 2019  Additionally, in December 2018, a 1.25% sports betting tax increase came into effect. This brings the sports betting taxes to 9.75% for sports betting facilities and 13% for mobile and online institutions. These additional gambling taxes go to helping.
  • NJ sports betting kicked off on June 14, 2018 with two retail sportsbooks in the state. That number quickly exploded and the market now boasts 17 sportsbook apps and 10 retail books at Atlantic City casinos and North Jersey racinos. Monmouth Park was the first to open its betting windows, followed immediately by Borgata in Atlantic City. DraftKings Sportsbook app launched statewide on Aug.

The legislature passed an enabling law last year, even before the US Supreme Court considered overturning the federal ban known as PASPA. That prohibition is no longer on the books, and Pennsylvania sports betting is legal pending final regulations.

Casino operators aren’t exactly lining up at the license office in anticipation, though. The specifics of the PA law leave a lot to be desired, clipping the industry’s wings before it even tries to fly.

Here’s how Brett Collson put it on the most recent episode of TheLines podcast:

“Pennsylvania is kind of a wild card this year. The regulations for sports betting currently in place are… concerning.”

What’s wrong with them? We’ll explain.

PA gets aggro with gambling taxes

As the saying goes, two things in life are certain: Death and high gambling taxes in PA.

The state’s expansion into these new formats will be taxed at a rate that raises serious questions about sustainability. As the law is written, sportsbooks will have to pay 36 percent of their revenue back to state and local coffers. That is a ridiculous number.

Compare that to Nevada, which has been refining its industry for almost 70 years. Nevada sportsbooks return 6.75 percent of their revenue to the state, and things work just great. Operators make a little profit, the state collects tens of millions of dollars, and bettors get to do what they do in a regulated environment.

PA operators will pay more than five times the tax rate in Nevada, a serious disincentive for some operators.

Spokesman Eric Schippers says Hollywood Casino isn’t even sure it wants sports betting under those terms. “We haven’t made a final determination on whether to pursue what is the highest rate on the planet for sports betting,” he told Penn Live.

A couple states (like Delaware and Rhode Island) will offer sports betting through more lopsided revenue-sharing agreements with their lotteries. Those are exceptions to the rule, though. Most states are proposing something between 7-15 percent.

It’s also worth mentioning that the oppressive taxation won’t be limited to sports betting. PA will tax online slot revenue at 54 percent, more than twice the rate at which operators say they feel comfortable. Slot play accounts for around three-quarters of total online gambling revenue in existing markets.

By way of another comparison, New Jersey taxes online slot revenue at 17.5 percent.

A high bar to entry for casinos too

The recurring costs are unfriendly, but some operators might not even be able to squeeze in the door. Obtaining a PA sports betting license requires operators to overcome the tallest hurdle in any US market, existing or proposed.

Taxes On Online Gambling Winnings

Like tax rates, there is no state standard for licensing fees. As an example, Indiana recently considered a bill with a proposed fee of just $5,000. There are some big ones, too, including the $5 million suggested in one Illinois bill. In broad terms, a couple hundred thousand dollars seems to be within the range across most states.

PA sports betting licenses will cost $10 million apiece, though, larger than any other proposal. The tax rate makes the market unappealing from the start, and the up-front fee will be a dealbreaker for some properties.

As the smallest PA casino, Lady Luck Nemacolin is a good example. The property generated around $20 million in total revenue last year, so there’s almost no way it would front the money for a license. Its only real path to sports betting would involve a partnership with an existing operator.

It’s not just the little guys, though. Hollywood Casino tallied more than $100 million in revenue last year, and it seems to have a good foothold on its market. Still, giving away $10 million is not a high priority. Schippers said that if Hollywood does offer sports betting, it would try to do so on the cheap. “The state has strangled the goose on this one,” he said.

There’s also some disparity between the licensure for sports betting and other forms of online gambling. Casinos will pay $4 million for a license in each of these game types:

  • Slot machines
  • Table games
  • Poker

While each of these separately cost $4 million, for $10 million, a property can purchase all three. So, casinos can spend the same amount of money to offer sports betting as they would to offer every form of iGaming.

So what? The state needs money

Yes, it certainly does. The fact that Pennsylvania has been operating under a budget shortfall is the only reason we even have a sports betting law to pick on.

This is the issue, though. Rather than viewing expanded gambling as an amenity for casinos, the state took it as an opportunity to plug its own leaks. Tax revenue is arguably the worst reason to allow expanded gambling, and that’s especially true for sports betting.

Sports betting taxes nevada

As any bookmaker (or bettor) will tell you, sports gambling has some of the tightest margins in the industry. Although bettors plunked down almost $5 billion last year in Nevada, sportsbooks earned less than $250 million, holding around five percent of the total “handle.”

In simple terms, operators earn about a nickel on every dollar bet. And Pennsylvania will take back almost two cents of that in taxes. That take will be counterproductive to what should have been the primary reason for legalization.

Sports betting is unique in that operators aren’t competing against each other as much as they are competing against offshore sites. There’s something like $150 billion wagered in the US each year, and almost all of it is done through black/gray channels. In order to provide a tempting alternative, the regulated industry must provide similar convenience and competitive lines.

Convenience won’t be a problem as long as there is mobile wagering, but competitive lines might be. If bookmakers want to be profitable in PA, they’ll almost certainly have to pad their lines. And if PA lines aren’t competitive, those in the know will just keep betting with “their guy.”

By writing their greed and shortsightedness into law, PA lawmakers are actually doing the unregulated industry a bit of a favor.

After the thrill of collecting gambling winnings, comes questions about taxes.

Yes, gambling income, which includes winnings from slots, table games, horse racing, sports betting, lottery games, jackpots, and the like, is considered taxable income. As such, you are required to report them on your tax return. The car, boat, or Harley Davidson and other noncash prizes also need to be reported.

There are plenty of questions surrounding Pennsylvania taxes and gambling winnings. Now there are even more with the advent of sports betting, betting apps, and online casinos in Pennsylvania.

Here are some answers.

How much are my gambling winnings taxed?

Casinos withhold 25% of winnings for people who provide a Social Security number. If you do not provide your Social Security number the, the payer may withhold 28%.

Currently, Pennsylvania’s personal income tax is set at a rate of 3.07% against taxable money, which includes gambling and lottery winnings.

The new regular withholding rate

Effective for taxable years beginning after December 31, 2017, the withholding rate under Section 3402(q) applicable to winnings of $5,000 or more from sweepstakes, wagering pools, certain parimutuel pools, jai alai, and lotteries (formerly 25%) is 24%.

Federal Form W-2G, Certain Gambling Winnings

The organization that pays the winnings, in most cases, the casino, is responsible for sending the recipient of the winnings Form W-2G, Certain Gambling Winnings.

Form W-2G reports the number of winnings to you as well as the IRS.

The payer is required to send Form W2G only if the winner reaches the following thresholds:

  • The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
  • The winnings (reduced by the wager) are $1,500 or more from a keno game
  • The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
  • The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:
    • $600 or more, and
    • At least 300 times the amount of the wager
  • The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).

How to report PA gambling winnings on taxes

According to the IRS, you must report the full amount of your gambling winnings each year on Form 1040, U.S. Individual Income Tax Return, line 21.

You may receive a Form W-2G showing the amount of your gambling winnings and any tax withheld. Include the amount from box 1 on Form 1040, line 21. Include the amount shown in box 2 on Form 1040, on the line designated as federal income tax withheld.

What if I don’t receive a Form W2-G?

If you did not receive Form W-2G, your winnings are still considered taxable income. A payer is required to issue you a Form W-2Gi f you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding. You must report all gambling winnings as “Other Income” on Form 1040, Schedule 1 (PDF) and attach this to Form 1040, including winnings that aren’t reported on a Form W-2G.

Michelle Malloy, Esq. at AUA Capital Management, LLC in Conshohocken, Pennsylvania, commented:

“You are required to report all gambling winnings for federal and Pennsylvania taxes. If you hit a certain threshold they (the casino) will withhold money. In the instance where a casino doesn’t do their job and and fails to send you a W2-G you are still required to report your winnings, or you run the risk of underreporting your taxable income for the year.”

Do I have to pay taxes if a group of people win the lottery?

What happens when a group of coworkers chip in on a lottery ticket that wins? What about you and a friend who put money on a long-shot team to win the championship?

Meet Form 5754. Payers use this form to prepare Form W-2 G when the person receiving gambling winnings subject to reporting or withholding is not the actual winner or is a member of a group of two or more people sharing the winnings.

Online Sports Gambling And Taxes 2016

Don’t send Form 5754 to the IRS. Keep a copy for your records and return the form to the payer (usually the casino) for preparation of Form W-2G for each person listed as winners.

Pennsylvania state taxes for gambling

In addition to federal taxes payable to the IRS, Pennsylvania levies a 3.07 % tax on gambling income.

You should report your Pennsylvania taxable winnings on PA Schedule T and on Line 8 “Gambling and Lottery Winnings” of your PA-40 Personal Income Tax Return.

If your gambling winnings come during a trip to another state or country, you are still required to report.

“Pennsylvania takes the position that they are entitled to tax a portion of your worldwide income based on certain income items (wages, interests, dividends, capital gains, gambling winnings, lottery winnings, etc),” said Malloy.

Are there any deductions available for taxes related to gambling?

Gambling losses can be deducted. However, they must be itemized on line 28 of Schedule A, Form 1040.

Also, you cannot deduct more than your winnings.

Expenses related to any gambling or lottery activities, (like your dinner at the steakhouse, celebratory drinks from the bar, or cost of hotel room) cannot be deducted.

If you are going to deduct gambling losses, keep these records:

  • The date and type of each wager
  • The name and location of the bet
  • The amount won or lost
  • Wagering tickets
  • Canceled checks
  • Credit card records

When using a players club/members card, casinos can track players’ spend. Therefore, you can request a win/loss report that will give you a fairly good sense of your activity in a casino. Online casino players can request the same report and most sites should be able to provide it without issue.

“A lot of people may under-report,” explained Malloy. “They might win $10,000 but have $3,000 of expenses so they think they are just going to report $7,000. That can be an issue, as Pennsylvania does not allow a deduction for expenses. If you win a lot of money in June, for example, you might want to make an estimated tax payment [due Sept. 15 and Jan. 15] so you don’t have an underpayment penalty the following April.”

How to claim gambling winnings and/or losses

Pennsylvania provides a helpful resource to determine how to claim gambling winnings and/or losses.

There is a prompt where you can start a ten-minute interview.

Be sure to have the following information ready:

  • Your and your spouse’s filing status
  • Amount of your gambling winnings and losses
  • Any information provided to you on a Form W-2G

Taxes on multistate lotteries

The Pennsylvania Department of Revenue considers multi-state lottery prizes, like those from Powerball and Mega Millions, awarded on tickets purchased through a licensed Pennsylvania state lottery ticket vendor, a prize by the Pennsylvania Lottery.

“ Such prizes are considered Pennsylvania source income and both residents and nonresidents are subject to tax on such income if the prize is a cash prize. Multistate lottery prizes awarded on tickets purchased through a vendor in another state lottery are considered prizes awarded by that state lottery. Such prizes are not considered Pennsylvania source income and only residents are taxed on such income regardless of whether the prize is a cash or noncash prize.”

Due to a 2016 law change, any cash prize won from a Powerball of Mega Millions ticket in any state is taxable for state purposes, in addition to federal taxes.

What happens if you win a few thousand dollars on a winning PA lottery ticket?

Lottery winnings are included in taxable income. Pennsylvania Lottery winners of an individual prize valued at more than $600 will receive a Form W2-G by mail.

If your spouse also wins, they must report their winnings separately.

“For a significant windfall, like over $5 million, it definitely makes sense to talk to an attorney or accountant to determine if they should take a lump sum payout or annuity. They may also need to think about estate tax planning, financial planning and/or asset protection planning for their windfall,” said Malloy.

Sports betting winnings and taxes

Sports betting winnings are taxable income.

The IRS states:

“Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”

Even though sports betting isn’t specifically listed, it falls under the umbrella of “gambling winnings.”

Wherever your sports betting win occurred – at the OTB, the casino, on a sports betting app – they payer should send Form W-2G.

Sports betting losses might also be used as deductions if you itemize your deductions and keep a detailed record of wins and losses.

Sports Betting Taxes Nevada

Based on your tax bracket, sports bettors in Pennsylvania could owe up to 35 % of winnings to the federal government in addition to the 3.07 % Pennsylvania taxes net gambling winnings.

Online gambling and taxes

Sports betting apps and online casinos provide unmatched convenience. You may also enjoy the anonymity of playing behind a screen name instead of in person. However, it still comes with the same tax responsibilities. Online gambling winnings are considered taxable income at the same rate as other gambling winnings.

For online gambling winnings, the payer is required to send Form W2G only if the winner reaches the following thresholds:

  • The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
  • The winnings (reduced by the wager) are $1,500 or more from a keno game
  • The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
  • The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:
    • $600 or more, and
    • At least 300 times the amount of the wager
  • The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).

Gambling Taxes By State

In terms of deductions for taxes, players can request a report from online casinos detailing wins and losses.