As summer winds down and we get closer to tax season, it’s important to keep sports betting taxes in mind. Any bet winnings no matter how small are subject to a gambling tax and rules can vary by state. While that may seem overwhelming, we’re here to simplify NJ sports betting taxes for you. And don’t miss our other essential betting guides.
Are Sports Betting Taxes a Thing?
NJ online sports betting has become a popular industry. Sites like PointsBet make it incredibly easy to place bets like their signature points betting model and even parlays. The best NJ sportsbook apps are all available for both iPhone and Android. They can also help with how to bet on sports and how to read odds. So if you’re looking to get involved with sports betting – that’s a great place to start. Keep in mind though that a bet winnings tax applies to online sports betting.
In 2018, sports betting became legal in New Jersey under Governor Phil Murphy. As a result, bet winnings are now subject to the New Jersey Gross Income Tax. Sports betting taxes apply to all institutions and all bet winnings are taxable and need to be reported. Failure to report winnings can result in hefty fines and interest. It is also a surefire way to elicit an audit. So be smart and consult an accountant to estimate the amount of sports betting taxes you are liable for.
Reporting Gambling Winnings for Sports Betting Taxes
Generally, if you’ve won more than $600, you’ll receive a W-2G form from the IRS. If your winnings are more considerable – above say $5,000 – the payer may even be required to withhold federal taxes. The withholding rate they use is not necessarily the amount you’ll owe. A payer, for instance, a casino, has no way of knowing your tax bracket. So be aware of your total earnings when filing for your reported gambling winnings.
If you do not receive a form from the IRS or have taxes withheld from a payer, your gambling winnings are still considered taxable income. Sports betting taxes are separate from income taxes. You should consult an accountant and prepare to file in accordance with the law regarding your reported gambling winnings.
Non-monetary winnings are also subject to a gambling winnings tax. This includes the fair market value of trips, cars, houses, bonds, etc. Generally, state income taxes need to be paid before the prizes are received. So if you win a car worth $30,000 then prepare to pay the appropriate taxes upfront for it.
New Jersey Income Tax brackets vary depending on total earnings. Consult the tables below for income tax brackets and make a note of where you fall.
Tax Brackets & Rates in NJ
Single Tax Bracket
Joint Tax Bracket
Please also remember, that both residents and nonresidents of NJ with reported gambling winnings in the state are subject to the same federal bet winnings tax.
Track Your Bet Winnings for Sports Betting Tax Time
The IRS requires a detailed log of gambling activity including the following information about each win and loss. This helps them verify the amount of sports betting taxes you owe.
- Type of wager or bet
- Name and address of the institution
- Names of other people there at the time
- The amount for each win and loss
You may deduct your sports betting or gambling losses if you itemize them. Losses have to be reported separately from winnings and you may only deduct up to your total bet winnings.
They also suggest you keep any related documents pertaining to a win or loss. This may include receipts, tickets, payment slips, etc. Online or mobile betting makes it easier to keep track as you’ll have verifiable access to your betting history. You have to be able to prove both wins and losses if you plan to deduct your losses.
Proof of losses can be anything from canceled checks, losing tickets, credit card records – even letters from casinos or betting institutions will count. Deducting losses is a good way to offset your winnings and cut down on your sports betting taxes.
Changes to Gambling Tax Laws
PASPA, the Professional and Amateur Sports Provision Act, made it illegal for states to operate, promote or advertise sports betting and gambling. Nevada, Montana, Delaware, and Oregon were the only exceptions as they had already been operating within the law.
When PASPA was repealed in 2018, it opened the door for individual states to create their own laws regarding sports betting.
In terms of sports betting taxes, NJ has paved the way for other states. But the newness of the legality has also led to new questions about gambling tax.
For instance, the standard deduction has nearly doubled in the past year so if you plan to itemize your losses – be aware that it might not be worth your time. Your gambling winnings tax will greatly vary based on the number of deductions you can take. Talk to your accountant about whether it is best to take the standard deduction or itemize.
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 the Casino Reinvestment Development Agency.
The additional bet winnings tax from the casinos will go back to Atlantic City directly. While the revenue from sports betting taxes will go back into the areas where the tracks are located. So the gambling winnings tax will go to making sports betting and gambling a better industry in New Jersey.
Professional Bookie? Register Your Bet Winnings Job
Most people subject to the gambling winnings tax are betting recreationally as a hobby. However, those who are professionally betting as their sole source of income should consider filing as a business under a Schedule C form.
There are some benefits to filing as a business, but also some things to be aware of. Filing as a business means expenses can be deducted – just like any other self-employment position. However, it can also potentially result in a self-employment tax and/or estimated quarterly payments.
The new tax laws have changed some aspects of professional gambling. Bettors cannot deduct business expenses in excess of their wagering income. Prior to the change in law, professional gamblers could deduct all losses – even if they exceeded their winnings.
Also keep in mind that if you plan to deduct losses or gambling expenses as a professional gambler, you have to itemize your expenses. The standard deduction will not work if you are reporting winnings as your sole income.
Prepare Your Sports Betting Taxes Ahead of Time
The new world of sports betting and gambling has led to an influx of participants. Those who will be filing for the first time should plan to do so early. Consulting an accountant and tackling your sports betting taxes now will help alleviate any financial stress come April.
Setting aside money for your gambling tax is also advised. Estimate what you’ll owe and plan accordingly. It is easier to write a check come tax time when you’ve processed what you’re liable for.
However, you decide to handle your sports betting taxes, the earlier you do it the better. Tax season is always right around the corner.