With the first year of legalized sports gambling in Ohio in the books, many Ohioans may face higher-than-expected tax bills because of their sports gambling winnings.
In the coming weeks, gamblers who won more than $600 will receive a federal W-2G form detailing their total winnings. Bettors who won more than $5,000 should expect the sportsbook to withhold 24% of their winnings for federal taxes.
Gamblers should be aware that the number reported on their W-2G will be the total amount they won in the calendar year, not the total number they withdrew from the sportsbook.
The amount gamblers won will be taxed at the federal level in accordance with regular income tax brackets. This means income earned from gambling will be netted together with W-2 wages, and all other sources of ordinary income.
The IRS allows bettors to deduct gambling losses only if they itemize their deductions. The bettor must have records to prove the amount of losses they claim. Furthermore, bettors cannot deduct more losses than the amount of gambling income reported. This means betters can only offset the income they won; they cannot claim a loss from sports betting.
While the ability to deduct gambling losses is beneficial for gamblers, losing the standard deduction comes at a great cost. With the standard deduction worth $14,600 in 2024, gamblers should not elect to itemize their deductions unless their losses are greater than the standard deduction.
To make the situation even more dire for Ohio bettors, the State of Ohio does not allow betters to deduct their losses on Ohio tax returns. This forces Ohio bettors into a very negative tax consequence because Ohio taxes bettors on their winnings without the offsetting deduction. Ohio Department of Taxation follows the IRS and includes bettors' winnings in with their ordinary income, resulting in higher taxes for bettors winning significant amounts of money.
While the Browns season win total was over, every Ohio gambler should attempt to keep their tax bill under.
Please reach out to Grady McMichen at Pease Bell with any questions regarding Ohio Gambling Taxation.
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