More than half of Americans surveyed in the report don’t know how to report money won on sports betting and gambling.
As more U.S. states have legalized online sports betting in recent months, with about $15.5 billion staked on March Madness alone, the Jackson Hewitt Internal Revenue Service released a report on whether adult Americans knew about the tax consequences of their gambling winnings.
The report found that 62% of taxpayers did not know how to report money won from sports betting and gambling.
In addition, 48% of those surveyed believe that cash winnings from sports betting are only taxable if their state has legalized sports betting. This is incorrect because all income must be reported to the IRS.
Official IRS rules state that income from sports betting and gambling is fully taxable, even if winnings are received from other states and include international bets.
They must be reported on Form 1040 and listed as “other income.” This applies to both federal and state tax returns.
The “other income” section also includes winnings from casinos, game shows, raffles and state lotteries.
Mark Steber, director of tax information at Jackson Hewitt, said: “In our survey, we saw that taxpayers are confused and need the advice of a tax professional to help them properly list additional sources of income, such as cash winnings from gambling.”
“As a sports betting becomes more accessible to Americans, it is important for taxpayers to know the intricacies of federal and state tax law.”
“If these incomes are reported incorrectly or not reported at all, there is a serious risk to the taxpayer: they could be fined by the IRS, their state or even subjected to an audit.”