Super Bowl sports betting winnings ‘subject to taxation,’ tax expert says

Susan Allen, American Institute of Certified Public Accountants Senior Manager, sits down with Yahoo Finance Live to talk about the likelihood of sports betting and gambling winnings being subject to taxation, and financial record-keeping practices.

Video Transcript

AKIKO FUJITA: A record 31 million Americans are expected to place bets on the Super Bowl this weekend, with the American Gaming Association forecasting more than $7.6 billion in wagers. But for those looking to gamble on the big game, there may be a big surprise waiting for you in the form of taxes on the other side.

Let's bring in Susan Allen, American Institute of Certified Public Accounts Senior Manager. And she's joining us today as part of our Taxes Made Simple series presented by Tax Act. Susan, what do people need to know ahead of their big bets over the weekend? Obviously, you know, we've seen sports betting grow in a significant way during the NFL season, but what are some of the tax implications they should be thinking about?

SUSAN ALLEN: Yeah. Well, I think, you know, when it comes to gambling winnings, no matter how you earn it, where you earn it, how much you earn it, it is taxable income. It will be reported when you file your individual return. It's reported as other income.

It's subject to taxation like your other typical income would be, whatever marginal tax rate you are in-- which could range from 10% to 37%. It would be subject to taxation. So do expect, if you are doing some gambling this weekend and you are that lucky one who won something, then it is subject to taxation. There are some other considerations when it comes to gambling winnings, such as if you earn a certain amount, you could actually receive an information statement, as I call it.

It could be in the form of a W-2 G or a 1099-MIS or a 1099-K. And those are important statements that you must have when you would file your return. And it would show exactly how much you earned. It's possible they could need to withhold taxes, which means you would go ahead and pay some of that right then and there. They would just take it out of your winnings, and they could have to withhold depending on how much you earn-- that rate's typically around 24%.

And you know, you get these information statements-- it's possible you can just-- with certain types of casinos and places, you could even walk out with that information statement right then on the spot, or you might receive that later on closer to tax time. They're required to come around January 31. So you could get an information statement, they could withhold some of your taxes right then on the spot.

You would be subject to taxation-- federal, potentially state consequences as well. And you know, lots of things to keep in mind. But you can always consult your CPA and such for specific guidance on your situation.

BRIAN CHEUNG: Yeah, Susan, it sounds like, you know, a lot of this is new, and that's simply because it's gone online in a lot of states over the last year or so. But it sounds like it might vary state to state. So is it like there's a certain limit by which it will become taxable?

And then she'd you just expect to get a filing form from DraftKings or whatever platform you did the betting on? Or is it something that you have to do yourself and keep records of?

SUSAN ALLEN: Well, I would always keep records myself regardless if I got an information statement. It's just a best practice when it comes to anything with your taxes to keep track of everything-- keep your records. For gambling specifically, it's a good idea to keep a log of how much did you earn, what were the dates, were there any losses or expenses associated with it. Because I didn't mention earlier, but you could potentially deduct some of those losses to offset some of the winnings.

So definitely keep your records, keep your logs. And you know, from a federal perspective, it's sort of how we already discussed-- you're going to report it on your individual tax return. It's considered other income. You could potentially have some losses. States will vary a little bit. But many of them will function similarly, and it will start with taxable income.

BRIAN CHEUNG: All right, very important details for people to remember as they bet on the over-under on the big game this weekend. I think it's 4.5 for the Bengals. But, Susan Allen, AICPA Tax Practice and Ethics Senior Manager, thanks so much for breaking all of that down for us.