The United States is going to try a bit of normal tonight with the kickoff of the 2020 National Football League season.
Sure, America's favorite spectator sport is not quite there.
But most of us will be watching the NFL on television, so fewer fans won't matter to us.
And COVID-19 isn't stopping gamblers and fantasy sports devotees from placing their bets and tracking the performances of their selected players.
The lucky bettors and savvy fantasy owners also will pocket some cash. So will the Internal Revenue Service if the winners follow tax law.
Yes, just in case you didn't know by now, fantasy sports winnings, like payoffs on traditional sports bets, are taxable.
Winnings reported by traditional sport books: Don't trying to hide your take. If it's large enough, the IRS will know about it, too, when your bets are placed at a legitimate gambling operation.
Those possible betting locations have expanded since the 2018 U.S. Supreme Court ruling that allowed states to decide whether to allow sporting event wagering within their borders.
When you payoff at one of these locales is large enough, the casino or betting parlor will complete what is known as a third-party report. This is a tax document that you'll get, typically the following January, detailing your gambling transactions.
The IRS also gets a copy of that report, generally Form W-2G or an IRS-accepted substitute. It includes not only your winnings, but also your personal and tax identification information.
Amounts trigger tax reporting: The issuance of a W-2G depends on the type of bet and how much you win.
Tax rules say the bet payer must complete a Form W-2G if you receive:
- $1,200 or more in gambling winnings from bingo or slot machines,
- $1,500 or more in winnings (reduced by the wager) from keno,
- More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament,
- $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
- Any other gambling winnings subject to federal income tax withholding.
If you try to avoid the sharing of your taxable luck with Uncle Sam, the betting operation will take it off the top. When you refuse to provide your tax ID, backup withholding at 24 percent of your winnings is implemented.
Fantasy games, real taxable winnings: As for fantasy league winnings, such as those paid out by FanDuel and DraftKings, the $600 amount also is the tax reporting trigger.
Fantasy sports organizers calculate players' net profits to determine if they hit the $600 level. The formula generally is Prizes Won - Entry Fees + Bonuses.
They also use slightly different tax documentation. When your annual earnings from a fantasy sports website is $600 or more, you (and the IRS) should get a Form 1099-MISC. Winnings paid through PayPal usually are reported on Form 1099-K.
And don't press your luck when it comes to winnings. Even if your jackpot is not enough to prompt a W-2G, other tax form or withholding, you're still legally required to report those smaller winning amounts to the IRS and, where applicable, your state tax collector.
Reporting your winnings: Your gambling earnings count as "Other income" and are entered on line 8 of Form 1040's Schedule 1.
The total of your winnings, along with other taxable income, then is transferred to the 1040's line 8. Yep, the same line number on both tax return documents.
Note that these line numbers on the 1040 and Schedule 1 are from the draft 2020 forms released for review in August. When the IRS issues the final version for this tax year, they could change.
But you get the idea and the reporting process will stay the same.
Reducing the taxable amount: Hitting a big jackpot or seeing your favorite team or player payoff on a bet is a thrill. But paying taxes on the winnings definitely is not.
That's why you should keep good gambling records. Details of your winnings and losses could help you reduce what you owe the U.S. Treasury.
You can use your gambling losses as an itemized deduction to trim your taxable winnings. Your losing bets offset your winnings.
The good news here is that the bets, winning and losing, don't have to be on the same sport. When your horse came up way short, that losing bet can reduce the amount you won on your better football bets.
You even can wipe out your winnings if you have enough losses. If that's the case, though, I'd seriously consider another hobby!
You cannot, however, deduct more losses that wins to produce a tax loss. Again, if that's happening, call Gamblers Anonymous and find another way to spend your free time and what little money you still have.
Documentation demands: Finally, the key to reducing your gambling losses is the same as with any tax claim. You need good records.
When it comes to betting, this includes such items as betting slips, receipts, tickets, statements or similar documentation.
And note that these gambling tax tips are for us casual gamblers who don't make a living placing bets. The rules are somewhat different for professional gamblers.
You can check out my previous post on reporting your gambling winnings for a bit more on this topic. Again, note that this post is specific to the 2019 tax year, especially in citing forms.
The IRS also has an interactive tax assistant that should help you determine how to claim your gambling winnings and losses.
Regardless of whether you're just dropping a few dollars for fun or depending on winnings to pay your bills, good luck. May your teams always win … unless they're playing mine!
You also might find these items of interest:
- Tax tips for winners of March Madness bets
- Even on big sports gambling days, Uncle Sam comes up short
- COVID-19 sports consequences and gambling costs, even on the fantasy sports front