Sports Bettors
DraftKings, FanDuel, BetMGM, Caesars, and other NJ-licensed sportsbook users. Whether you bet recreationally or actively, all winnings are taxable and losses may be deductible — but the 2026 rules changed how much you can deduct.
Gambling & Sports Betting Tax Services
NJ-licensed CPA for gamblers and sports bettors. W-2G reporting, federal and NJ filings, loss deduction optimization, and 2026 phantom income planning — handled personally by Greg Monaco, CPA.
Quick Answer: Which Rules Apply to You?
Filing 2025 returns now? The old 100% loss deduction still applies. You can deduct gambling losses up to the full amount of your winnings on your federal return.
Gambling in 2026? The 90% loss cap is already in effect. You can only deduct 90% of your gambling losses on your federal return, even if your losses exceed your winnings.
NJ advantage: New Jersey still allows 100% netting on the NJ-1040. NJ did not adopt the federal 90% cap, making NJ-specific optimization critical for reducing your overall tax bill.
Who This Service Is For
Whether you bet on sports, play casino games, enter poker tournaments, or hit the lottery, gambling income has tax consequences. Here's how we help each type of client.
Casino Gamblers
Slot players, table game players, and anyone receiving W-2G forms from Atlantic City or online casinos. We reconcile your win/loss statements with W-2G reporting and optimize your federal and NJ filings.
Poker Players
Tournament and cash game players face unique reporting requirements. Tournament winnings over the W-2G threshold generate forms, but cash game sessions require self-reporting. We help document both correctly.
Lottery Winners
NJ Lottery and multi-state lottery winners face immediate withholding and complex tax obligations. We handle the federal and NJ filing, estimated payments on installment prizes, and lump-sum vs. annuity tax analysis.
Professional Gamblers
If gambling is your full-time trade or business, you may qualify for Schedule C reporting under Commissioner v. Groetzinger. Professional status allows business expense deductions but triggers self-employment tax. We evaluate your situation and file accordingly.
Federal vs. New Jersey: Gambling Tax Rules
Federal and NJ gambling tax rules differ in important ways. Understanding both is key to minimizing your total tax bill.
| Rule | Federal | New Jersey |
|---|---|---|
| How losses work | Itemize on Schedule A. Capped at 90% of losses for 2026+ under Section 165(d). | Net losses against winnings on NJ-1040. 100% netting allowed. Net income cannot go below zero. |
| Must you itemize? | Yes. You must itemize on Schedule A to deduct gambling losses. If you take the standard deduction, no loss deduction is available. | No. NJ netting is automatic on the NJ-1040 gambling income line. Itemizing is not required. |
| Tax rates | Ordinary income rates: 10% to 37% depending on total taxable income. | Ordinary income rates: 1.4% to 10.75% depending on total NJ gross income. |
| Withholding | 24% federal backup withholding on certain reportable winnings (slots, poker tournaments, keno). | 3% NJ withholding on reportable casino and sportsbook winnings. Credited on your NJ return. |
| Lottery rules | Lottery winnings are taxable at ordinary rates. 24% withheld on prizes over $5,000. | NJ Lottery winnings are exempt from NJ state tax. Multi-state lottery winnings (Powerball, Mega Millions) purchased in NJ are also NJ-exempt. |
| W-2G threshold | $2,000 for slots/bingo (increased from $1,200 in 2026). $600+ and 300:1 for other wagers. $5,000 for poker tournaments. | NJ follows federal W-2G thresholds. The $2,000 slot threshold applies in NJ for 2026+. |
Why this matters: Because federal and NJ rules differ significantly, a CPA who understands both systems can optimize your combined tax outcome. NJ's full netting often produces a lower state tax bill than you'd expect from looking at the federal numbers alone.
What's Changed: 2026 Gambling Tax Law
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, made two significant changes to federal gambling tax rules effective January 1, 2026. Both changes impact how gamblers file and how much they owe.
The 90% Loss Deduction Cap — Section 165(d)
Previously, recreational gamblers could deduct gambling losses up to the full amount of their winnings. Starting in 2026, the deduction is capped at 90% of total gambling losses. This creates “phantom income” for break-even gamblers: if you win $50,000 and lose $50,000, you can only deduct $45,000, leaving $5,000 in taxable income with zero actual profit. The cap applies to all recreational gamblers who itemize on Schedule A. Professional gamblers reporting on Schedule C are not subject to this cap.
W-2G Threshold Increase — $1,200 to $2,000
The threshold for issuing W-2G forms on slot machine and bingo winnings increased from $1,200 to $2,000. This means fewer W-2G forms will be issued, but the income is still fully taxable. If you win $1,500 on a slot machine in 2026, you won't receive a W-2G — but you're still required to report it.
NJ-Specific Rules
New Jersey has not adopted the federal 90% cap. On your NJ-1040, you can still net 100% of gambling losses against gambling winnings. This means NJ-specific optimization is more valuable than ever — the difference between your federal and NJ gambling income can be substantial, and proper filing ensures you don't pay more NJ tax than required.
Services Included
All gambling tax engagements are handled personally by Greg Monaco, CPA, licensed in New Jersey (CPA #20CC04711400). No junior staff, no outsourcing.
Tax Return Preparation
Full federal and NJ tax return preparation for gamblers and sports bettors. We handle W-2G income, Schedule A loss deductions, and the 2026 90% cap calculations to ensure accurate, IRS-compliant filing.
Loss Documentation Support
Help organizing your gambling session logs, win/loss statements, and supporting records into IRS-compliant documentation. Proper records are essential to claim any loss deductions on your federal return.
W-2G and 1099 Reconciliation
We reconcile all W-2G forms and 1099-MISC statements from casinos, sportsbooks, and poker rooms against your actual records to ensure nothing is missed or double-counted on your return.
Multi-State Filing
Filing in multiple states due to casino visits or out-of-state sportsbook activity? We handle the allocation of gambling income across jurisdictions and claim proper credits to avoid double taxation.
Audit Representation
If the IRS or NJ Division of Taxation questions your gambling income or loss deductions, we provide full representation. We handle correspondence, documentation requests, and in-person audit appearances.
Year-Round Advisory
Ongoing tax planning for active gamblers including estimated tax payment calculations, withholding optimization, and strategic advice on the 2026 90% cap and NJ netting advantages.
What to Bring & What You Get
What to Bring
- W-2G forms from casinos, sportsbooks, and poker rooms
- Year-end win/loss statements from each casino and sportsbook
- Personal gambling session log (dates, locations, amounts)
- 1099-MISC forms for any non-W-2G gambling income
- Records of estimated tax payments and withholdings
- Prior year tax return (for comparison and carryforward items)
What You Get
- Completed federal and NJ tax returns with gambling income properly reported
- Optimized loss deductions using both federal (90% cap) and NJ (100% netting) rules
- W-2G reconciliation ensuring all forms match your return
- Estimated tax payment schedule for the current year
- Written summary explaining your gambling tax position and planning opportunities
Case Examples
Real-world scenarios showing how proper gambling tax preparation makes a difference.
Sports Bettor — Break-Even with Phantom Income
A recreational sports bettor won $25,000 and lost $25,000 across DraftKings and FanDuel in 2026. Under the old rules, they would owe nothing. Under the 90% cap, only $22,500 of losses are deductible federally — creating $2,500 in phantom taxable income. On the NJ return, full netting still applies, so NJ tax is zero. We filed both returns, saving the client from overpaying NJ.
Poker Tournament Player — Multi-State Reporting
A NJ resident won $40,000 across poker tournaments in NJ, Pennsylvania, and Nevada. Each state required separate reporting. We allocated income by state, filed nonresident returns in PA and NV (NV has no state income tax), claimed NJ credits for taxes paid to PA, and documented $28,000 in session losses with proper logs.
Multi-State Gambler — Casino and Online
A client had $60,000 in W-2G income from Atlantic City slots, $15,000 in online sportsbook winnings, and $52,000 in documented losses. We itemized federal deductions (capped at $46,800 under the 90% rule), netted the full $52,000 against NJ winnings, and reconciled all W-2G forms to match IRS records. The NJ optimization saved over $900 in state tax.
These examples are illustrative composites based on common client scenarios. Actual tax outcomes depend on your specific facts and circumstances. This is not tax advice.
Free Gambling Tax Guides
In-depth articles covering the tax rules every NJ gambler should know.
The 90% Gambling Loss Cap
How the OBBBA changed Section 165(d), what phantom income means, and who is affected.
Read guideHow NJ Taxes Gambling
NJ netting rules, withholding rates, lottery exemptions, and how NJ differs from federal.
Read guideDraftKings & FanDuel Tax Guide
Step-by-step guide for NJ sports bettors: reporting winnings, claiming losses, and avoiding mistakes.
Read guideGet the Gambling Tax Toolkit (Free Download)
Subscribe to get our free gambling tax toolkit delivered to your inbox. The toolkit includes:
- Gambling session log template (IRS-compliant format)
- 2026 loss cap calculator worksheet
- Federal vs. NJ comparison cheat sheet
- Estimated tax payment schedule for gamblers
Tax Tips & Insights from Greg Monaco, CPA
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Gambling Tax FAQ
Do I have to report gambling winnings if I didn't receive a W-2G?
Yes. All gambling winnings are taxable income and must be reported on your federal and NJ tax returns, regardless of whether you received a W-2G form. The W-2G threshold increased to $2,000 for 2026, which means fewer forms will be issued — but the reporting obligation is unchanged.
Can I deduct my gambling losses?
On your federal return, yes — if you itemize deductions on Schedule A. For 2026 and beyond, losses are capped at 90% of total losses under the OBBBA’s amendment to Section 165(d). On your NJ return, you can net losses against winnings to arrive at net gambling income (and NJ still allows 100% netting), but you cannot report net gambling income below zero.
How does New Jersey tax sports betting winnings?
NJ taxes sports betting winnings as ordinary income at rates from 1.4% to 10.75%, depending on your total income. NJ casinos and sportsbooks withhold 3% on certain reportable winnings. These withholdings are credited against your NJ tax liability when you file.
Are DraftKings and FanDuel winnings taxable in NJ?
Yes. Winnings from any NJ-licensed sportsbook — DraftKings, FanDuel, BetMGM, Caesars, and others — are taxable as ordinary income for both federal and NJ purposes.
What is phantom income from gambling?
Phantom income is taxable income created by the 2026 rule change where gamblers who break even still owe federal tax because only 90% of losses are deductible under Section 165(d). For example, if you win $20,000 and lose $20,000, you can only deduct $18,000 — leaving $2,000 in taxable income despite having no actual profit.
Does NJ follow the federal 90% loss cap?
No. New Jersey allows full netting of gambling wins and losses on the NJ-1040. The 90% cap is a federal rule only. This makes NJ-specific optimization particularly valuable — a CPA who understands both systems can minimize your combined tax burden.
Do I need to pay estimated taxes on gambling winnings?
If you expect to owe more than $400 in federal tax (or NJ tax) that isn’t covered by withholding, you should make estimated quarterly payments to avoid penalties. This is especially important in 2026, since the 90% cap may create unexpected tax liability even for break-even gamblers.
What records should I keep for gambling taxes?
Maintain a log of each gambling session including date, location, type of activity, amounts wagered, and amounts won or lost. Save W-2G forms, sportsbook year-end statements, losing tickets, and receipts. The IRS requires this documentation to support any loss deductions.
Can I qualify as a professional gambler?
The IRS uses a facts-and-circumstances test based on Commissioner v. Groetzinger (1987). Professional gamblers pursue gambling full-time, with regularity and continuity, and with the intent to make a profit. Professional status allows Schedule C reporting and business expense deductions, but also subjects income to self-employment tax (15.3%).
Ready to File?
Filing 2025 returns? The old 100% loss deduction still applies — but you need proper documentation to claim it. I'll reconcile your W-2G forms, optimize your federal and NJ filings, and make sure you're not leaving money on the table.
Planning for 2026? The 90% cap is already in effect. I'll help you understand your phantom income exposure, set up estimated payments, and take advantage of NJ's full netting rules. Get in touch to discuss your gambling tax situation.
Gregory Monaco, CPA LLC d/b/a Monaco CPA · NJ CPA Firm License #20CB00789800 · Personal License #20CC04711400
Livingston, NJ 07039 · (862) 320-9554 · taxhelp@MonacoCPA.CPA
Gambling tax services are provided remotely to clients in New Jersey and other states where permitted. This page is for informational purposes only and does not constitute tax advice. Use of this website does not create a CPA-client relationship.