By Mike Winters -
CNBC
If you win money betting on the Super Bowl this weekend, don't blow it all at once: you'll have to pay taxes on those winnings.
The money you win gambling—whether through online betting sites or apps, casinos, raffles, or fantasy sports leagues—is considered taxable income by the IRS.
The fair market value of non-monetary prizes is also taxed.
An employee finalizes the state of the field for the Super Bowl LVII game between the Philadelphia Eagles and the Kansas City Chiefs at State Farm Stadium in Glendale, Arizona on February 11, 2023.Angela Weiss/AFP via Getty Images
Typically, when you win $600 or more, gambling companies send you and the IRS tax forms, usually the W-2G, but sometimes also the 1099-MISC for raffle prizes or sweepstakes.
The IRS can use these forms to verify your total income when processing your tax return.
If the winnings are $5,000 or more, the company that processed your bet could withhold up to 31% of the proceeds for federal income tax, according to the IRS.
This will be indicated in Box 4 of your W-2G.
If you did not receive the forms, you are not without fault either.
You remain responsible for monitoring and reporting all income earned through gambling.
That's why experts recommend keeping good records of your gambling wins and losses throughout the year.
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Fortunately, many gambling sites and casinos have a downloadable record of your bets.
Once you have your records, you'll need to report your winnings as “gambling income” on line 8 of your Form 1040, Schedule 1, which is used to report types of income not listed on the main 1040 tax form.
That total is then added to line 8 of the 1040 form, under "other income."
Your gambling losses will not be easy to deduct
Gambling winnings and losses are reported separately on the income statement.
The winnings you report as income include the cost of the game, or the original wager.
Gambling losses can be deducted, but they cannot exceed the winnings you report as income.
The cost of the bet can also be deducted as a loss.
However, gambling losses can only be claimed if you itemize your deductions on Schedule A of your Form 1040.
These are the changes in tax deductions that will apply this season
Feb 5, 202301:35
“Let's say you bet $1,000 and you get $3,000 back,” explains Romeo Razi, a public accountant based in Las Vegas, Nevada.
"You're going to report the $3,000 and you'll have a $1,000 gamble loss as an itemized deduction," he adds.
However, most people do not itemize their deductions.
Instead, they opt for the standard deduction, which is a hefty chunk of tax relief totaling $12,950 for single filers in 2022.
For that reason, itemized deductions—including gambling losses—may not be worth it, since the total amount of those deductions may not exceed what you could claim under the standard deduction.
Sanctions and even prison terms for not declaring earnings
If you do not report all of your gambling winnings, you are breaking the law.
The IRS can find out by comparing your income to the W-2 forms they receive or by looking at your bank deposit activity.
For large amounts, you may risk going to jail, while for smaller amounts, the IRS may impose additional fines and interest.
A 20% penalty may apply if the total unreported amount exceeds $5,000 or 10% of the actual tax liability, whichever is greater.
The IRS clarifies that it did not ask taxpayers to delay their tax return
Feb 12, 202300:29
That said, the IRS is less likely to notice casual bets that don't involve W-2 forms, such as pools between friends.
But even with casual play, a large cash deposit or someone sending you money described as winnings could still trigger an audit.
Therefore, you must report everything.
