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
CPA-authored education and written-scope intake for gamblers and sports bettors. W-2G reporting, federal and NJ filings, supported loss reporting, and records-based 2026 planning. Verify current New Jersey credential status with the State Board before relying on a representation. Greg remains responsible for every accepted engagement and reviews, approves, and signs client-facing work.
Quick Answer
- Federal gambling winnings are taxable regardless of whether you receive a W-2G. New Jersey generally taxes gambling winnings, but New Jersey Lottery prizes of $10,000 or less per prize are excluded from NJ Gross Income Tax. For 2026 sports/parimutuel wagers, W-2G reporting requires a payment of at least $2,000 AND payment/winnings of at least 300 times the wager. The wager is not subtracted for the 300-times reporting test.
- Federal gambling loss deductions are now capped at 90% of total losses under the OBBBA amendment to Section 165(d), effective January 1, 2026.
- NJ permits documented same-year losses to offset winnings within the applicable gambling-income category on NJ-1040, with a zero floor; this is not a cross-category offset or loss carryforward.
- Professional gambler status (Commissioner v. Groetzinger) allows Schedule C reporting and business deductions but triggers self-employment tax.
- Phantom income can occur when the 90% federal loss cap creates taxable income even when you break even or lose money overall.
Key Facts
- •Federal gambling winnings are taxable (IRC 61; Section 165(d) governs loss deductions)
- •NJ allows documented same-year losses to offset winnings within the same gambling-income category on NJ-1040 (per TB-20(R) and N.J.S.A. 54A:5-1(g)), with a zero floor and no cross-category offset or carryforward - NJ did NOT adopt the federal 90% cap
- •OBBBA caps federal gambling loss deductions at 90% of losses, still limited to winnings (2026+)
- •W-2G issued at TY2026 thresholds: a $2,000 payment for slots/bingo without wager reduction; $2,000 for keno after reducing winnings by the wager; $2,000 net of buy-in for poker tournaments ($5,000 net applied through 2025); and, for sports or other parimutuel wagers, both a payment of at least $2,000 and payment/winnings of at least 300 times the wager
2026 Alert
The One Big Beautiful Bill Act (OBBBA) changed gambling tax rules effective January 1, 2026. The federal loss deduction is now capped at 90% under Section 165(d), and the W-2G reporting dollar thresholds increased to $2,000 for 2026. Slots and bingo use the payment without reducing it by the wager; keno uses winnings after wager reduction. Sports and other parimutuel wagers use two tests on the payment/winnings amount: at least $2,000 and at least 300 times the wager. Wager subtraction instead applies to the separate regular-withholding proceeds test.
Organize your gambling records →Quick Answer: Which Rules Apply to You?
Filing a 2025 return? The old 100% loss deduction still applies - including extended returns due October 15, 2026. 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, and never more than your winnings.
NJ difference: New Jersey permits documented same-year losses to offset winnings within the applicable gambling-income category on NJ-1040, with a zero floor. NJ did not adopt the federal 90% cap, but its rule does not create a cross-category offset or loss carryforward.
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 the tax rules apply to each type of gambler.
Casino Gamblers
Slot players, table game players, and recipients of W-2G forms from Atlantic City or online casinos. Reconcile forms, statements, session records, and other evidence before applying the distinct federal and NJ rules; no tax result is promised.
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. Proper documentation of both is critical for compliance.
Lottery Winners
NJ Lottery and multi-state lottery winners face immediate withholding and complex tax obligations. Key considerations include federal and NJ filing coordination, estimated payments on installment prizes, and lump-sum vs. annuity tax analysis.
Professional Gamblers
Gambling activity may be reported differently when the complete facts establish a trade or business under Commissioner v. Groetzinger. The analysis considers continuity, regularity, profit motive, records, other work, and the taxpayer's actual activities; calling the activity professional or forming an entity does not decide the result. Only after that classification should the return position, expense treatment, and any self-employment-tax consequence be determined.
Prediction Market Traders
Event-contract platforms can produce statements, transaction histories, fees, transfers, and information returns that must first be reconciled to the taxpayer's records. Federal and state character, timing, reporting, and any disclosure question depend on the instruments and complete facts; this page does not select or promise a tax classification.
How It Works
1
Start With the Contact Form
Use the contact form to tell me about your gambling activity, which platforms you use, and what you need for your return.
2
Document Collection
You provide your W-2G forms, year-end statements from sportsbooks and casinos, and your gambling log. I'll tell you exactly what I need. No guessing.
3
Return Preparation
Federal and NJ return preparation within the accepted written scope, including supported gambling-loss reporting and W-2G reconciliation. Event-contract activity requires a separate records and issue review before any return position or disclosure can be considered; no particular classification or form is promised.
4
Review & File
You review the completed returns, ask questions, and approve for filing. I e-file both federal and NJ.
5
Client-Supplied Update Review
Any post-filing or estimated-tax review requires a separately stated written scope and current client-supplied records. No monitoring, automatic check-in, reminder, or projection outcome is included.
Federal vs. New Jersey: Gambling Tax Rules
Federal and NJ gambling tax rules differ in important ways. Apply each set of rules to the supported records and complete return rather than assuming one netting result.
| Rule | Federal | New Jersey |
|---|---|---|
| How losses work | Casual gamblers claim supported losses on Schedule A. A taxpayer whose activity satisfies the facts-and-circumstances trade-or-business standard generally reports it on Schedule C. The 2026 Section 165(d) limit applies to both categories. | Documented same-year losses offset winnings within the applicable gambling-income category on NJ-1040. The category cannot go below zero; no cross-category offset or carryforward is created. |
| Must you itemize? | Yes - for casual (nonprofessional) gamblers. You must itemize on Schedule A to deduct losses; with the standard deduction, no federal loss deduction is available. A taxpayer whose gambling activity satisfies the facts-and-circumstances trade-or-business standard under Groetzinger generally reports it on Schedule C instead. | No federal-style Schedule A itemization is required. The taxpayer must still compute and substantiate the permitted same-year, same-category NJ net amount; it is not an automatic conclusion from a win/loss statement. |
| 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% regular federal withholding when winnings minus the wager exceed $5,000 for sweepstakes, wagering pools, and lotteries; for sports and parimutuel wagers, the payment/winnings must also be at least 300 times the wager. The payer withholds 24% of the proceeds (winnings minus wager). For slots, keno, and bingo, only 24% backup withholding applies (when no valid TIN is provided). Noncash prizes are measured at fair market value; if the payer covers the withholding on your behalf, the grossed-up amount is added to your reported winnings. | 3% NJ withholding when federal regular gambling withholding is required, rather than whenever a W-2G is reportable. Slots, keno, and bingo are excluded; NJ Lottery uses a separate withholding schedule. Credit any amount withheld on your NJ return. |
| Lottery rules | Lottery winnings are taxable at ordinary rates. Federal withholding is 24% once the PRIZE exceeds $5,000 - and for installment prizes the test applies to the total prize, so every installment check gets 24% withheld even when an individual check is under $5,000. Annuity winners receive a W-2G every year, and lump-sum-vs-annuity choices have their own timing rules (including a 60-day election window on some prize options) - model both before you pick. | NJ Lottery prizes of $10,000 or less per prize are exempt from NJ state tax. Prizes over $10,000 are taxable. Multi-state lottery prizes (Powerball, Mega Millions) purchased in NJ follow the same rule. |
| W-2G threshold | For 2026: slots/bingo payment of $2,000 or more without wager reduction; keno winnings of $2,000 or more after wager reduction; and, for sports/parimutuel wagers, payment of at least $2,000 AND payment/winnings of at least 300 times the wager. Poker tournaments use $2,000 net of buy-in ($5,000 net applied through 2025). | NJ follows federal W-2G thresholds. For 2026 sports/parimutuel wagers, that means payment of at least $2,000 AND payment/winnings of at least 300 times the wager. |
Why this matters:Because federal and NJ rules differ significantly, the federal and NJ computations must be performed separately. NJ's same-year, same-category netting rule has a zero floor and creates neither a cross-category offset nor a loss carryforward; the state tax effect depends on the complete NJ return.
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 gamblers who deduct losses, whether recreational (Schedule A) or professional (Schedule C).
High earners can face a second limitation. For TY2026+ the Section 68 itemized-deduction limitation (the "2/37 rule") further reduces the benefit of itemized deductions - including gambling losses that already survived the 90% cap - once taxable income measured before subtracting itemized deductions exceeds roughly $640,600 (single) / $768,700 (married filing jointly) - the statutory test adds itemized deductions back, so the limitation can apply even when taxable income on the return is below these figures. A break-even bettor in the top bracket loses twice: about 10% of losses to the Section 165(d) cap, then roughly 2/37 of the remaining deduction benefit to Section 68.
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 losses against gambling winnings under its own same-category, same-year rules and limitations. The federal and NJ reported amounts can differ. Compute each from the taxpayer's complete records; this page does not promise a smaller state result.
Services Included
Gambling tax education and possible written-scope tax preparation, planning, and compliance work by Gregory Monaco, CPA, licensed in New Jersey (#20CC04711400).
Tax Return Preparation
Federal and NJ tax return preparation for gamblers and sports bettors under an accepted written scope. The work may cover client-supplied W-2G income, substantiated Schedule A loss deductions, and the 2026 90% cap calculation; the result depends on complete records and the taxpayer's full return.
Loss Documentation Support
Help organizing client-supplied session logs, win/loss statements, and supporting records for evaluation under the applicable substantiation rules. Organizing records does not by itself establish that a loss is deductible.
W-2G and 1099 Reconciliation
Reconciliation of client-supplied W-2G and 1099-MISC statements against available wagering records, using the procedures defined in the accepted written scope.
Other-State Filing Education
Gambling activity outside New Jersey can create other-state filing questions. Monaco CPA confirms the returns and jurisdictions covered in a written scope before work begins.
Correspondence Notice Support
After separate written acceptance, Monaco CPA may review an ordinary non-examination IRS or state correspondence notice concerning gambling income or loss deductions and prepare a client-submission response package. Agency representation, examinations, appeals, and collection matters require an independent tax-controversy specialist.
Written-Scope Tax Analysis
An accepted written scope may include federal and NJ estimated-tax calculations and reporting analysis using records the client supplies. Monaco CPA does not monitor accounts or deadlines, recommend wagers or transactions, or promise reminders or a result.
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
- Federal 90% cap and NJ same-year, same-category netting calculations, with NJ's zero floor and no cross-category or carryforward assumption
- W-2G reconciliation documenting supported matches and differences between forms, statements, records, and the return
- Specified estimated-tax calculations under an accepted written scope; the client tracks deadlines and transmits payments
- Written summary of the supported return position and unresolved fact or authority questions within the accepted scope
Illustrative Hypotheticals
Simplified hypothetical scenarios showing how the current federal and NJ rules can play out - not actual client engagements.
Sports Bettor - Break-Even with Phantom Income
Suppose a recreational sports bettor wins $25,000 and loses $25,000 across DraftKings and FanDuel in 2026. Before 2026, an itemizer with substantiated losses could generally deduct losses up to winnings - though gross winnings still raised AGI and itemizing could displace the standard deduction, so the overall effect was not always zero. Under the 90% cap, only $22,500 of the losses is deductible federally - creating $2,500 in phantom taxable income. On the NJ return, the documented same-year losses offset winnings within the same gambling-income category to a zero floor in this illustration; no cross-category offset or carryforward is implied.
Poker Tournament Player - Multi-State Reporting
Suppose a NJ resident wins $40,000 across poker tournaments in NJ, Pennsylvania, and Nevada. Correct preparation allocates the income by state, files a Pennsylvania nonresident return (Nevada has no state income tax, so no NV return is needed), claims the NJ credit for taxes paid to PA, and substantiates session losses - say $28,000 - with contemporaneous logs.
Multi-State Gambler - Casino and Online
Suppose a gambler has $60,000 in W-2G income from Atlantic City slots, $15,000 in online sportsbook winnings, and $52,000 in documented losses. Federally, itemized losses are capped at $46,800 under the 90% rule. On the NJ-1040, documented same-year losses are tested against winnings within the applicable gambling-income category, with a zero floor, and each W-2G is reconciled to IRS records. No cross-category offset or carryforward is assumed; the resulting tax effect depends on the rest of the NJ return.
These examples are simplified hypothetical illustrations, not actual client engagements. They assume the facts stated and omit items that can change the result, including filing status, other income, itemized deductions, residency, sourcing, and documentation. They are not tax advice and do not guarantee any outcome.
Gambling Tax Resources
Current service information, records guidance, and reviewed tax resources.
Gambling Filing Checklist
Common records to organize before a federal and New Jersey return review.
Read guideIndividual Tax Preparation
Written-scope return preparation and records-based filing support.
Read guideReviewed Tax Resources
Current checklists, tools, and educational materials that remain public.
Read guideEsports Tournament Prizes vs. Gambling: Classification Depends on the Facts
A sponsor-funded skill-contest prize may differ from a pay-to-enter, participant-funded pool. The actual contest mechanics, funding, entry terms, and the taxpayer's activity determine the reporting form, income character, available deductions, and whether Section 165(d) applies.
| Category | Sponsor-Funded Esports Prize | Gambling (Casino, Sports Betting) |
|---|---|---|
| IRS form | A payer may report a qualifying prize on Form 1099-MISC. The form and threshold depend on the payer relationship and governing information-reporting rule. Skill alone is not dispositive; pay-to-enter participant-funded pools require separate review (see CCA 202042015). | W-2G. For 2026, slots/bingo use payments of $2,000+ without wager reduction; keno uses $2,000+ after reducing winnings by the wager; poker-tournament winnings use $2,000 or more net of buy-in (more than $5,000 net through 2025). |
| Tax classification | Prize income may be other income or trade-or-business receipts depending on continuity, regularity, profit motive, and the taxpayer's actual activity. | Gambling income. Reported on the gambling income line of your return. |
| Loss deduction | Ordinary and necessary expenses may be deductible only if the facts establish a trade or business and the expense otherwise qualifies. If the transaction is a wagering transaction, Section 165(d) includes otherwise allowable deductions incurred in carrying it on and the 2026 90% limitation must be considered. | Losses deductible on Schedule A up to winnings. Capped at 90% of losses for 2026+ under OBBBA Section 165(d). |
| NJ state treatment | Taxable income; any business-expense treatment depends on classification, substantiation, and New Jersey's category rules. | NJ allows documented same-year gambling losses to offset winnings within the same category on NJ-1040 (Line 24) per TB-20(R). Net cannot go below zero, and no cross-category offset or loss carryforward is created. |
Why this matters: Do not classify an esports receipt from the label alone. A sponsor-funded prize and a participant-funded wagering pool can produce different results, and professional status does not by itself remove wagering expenses from Section 165(d).
Gambling Tax FAQ
Do I have to report gambling winnings if I didn't receive a W-2G?
Federal gambling winnings are taxable income and must be reported regardless of whether you received a W-2G form. New Jersey generally taxes gambling winnings, but New Jersey Lottery prizes of $10,000 or less per prize are excluded from New Jersey Gross Income Tax. For a 2026 sports or parimutuel wager, a W-2G requires a payment of at least $2,000 and payment/winnings of at least 300 times the wager. Subtracting the wager is relevant to the separate regular-withholding proceeds test, not the 300-times reporting test. Form issuance does not change the federal reporting obligation.
Can I deduct my gambling losses?
For a casual gambler, a supported federal loss deduction is claimed on Schedule A and is unavailable when the standard deduction is used. A taxpayer whose gambling activity satisfies the facts-and-circumstances trade-or-business standard generally reports that activity on Schedule C. For both categories, Section 165(d) limits the 2026 federal deduction to 90% of otherwise allowable losses and related wagering expenses, and not above wagering gains. New Jersey separately permits supported same-year losses only within the applicable gambling-income category, with a zero floor and no cross-category offset or carryforward.
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. The 3% NJ gambling withholding applies when federal regular gambling withholding is required, not merely because a W-2G is reportable; slots, keno, and bingo are excluded, and NJ Lottery uses a separate schedule. Any NJ withholding is credited against your 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 did not adopt the federal 90% cap. NJ permits documented same-year losses to offset winnings within the applicable gambling-income category on NJ-1040, with a zero floor. That rule does not imply a cross-category offset or a loss carryforward, and the return effect depends on the taxpayer's facts.
Do I need to pay estimated taxes on gambling winnings?
Federal estimated-tax rules generally apply when you expect to owe at least $1,000 after withholding and refundable credits. New Jersey has a separate system that generally applies when expected tax due after withholding and credits is more than $400. Payment amount, timing, withholding, safe harbors, annualization, and exceptions determine whether an underpayment addition applies, so the thresholds alone do not establish the required payment or guarantee penalty avoidance.
What records should I keep for gambling taxes?
Keep an accurate diary or similar contemporaneous record showing dates, locations, activity types, amounts wagered, and amounts won or lost, together with available W-2Gs, account statements, tickets, receipts, and other supporting evidence. Whether the records substantiate a return position depends on the complete facts and applicable rules.
Can I qualify as a professional gambler?
Commissioner v. Groetzinger, 480 U.S. 23 (1987), applies a facts-and-circumstances trade-or-business analysis that includes continuity, regularity, profit motive, records, and the taxpayer's actual activities. Full-time hours can be evidence but are not a standalone test, and forming an entity does not establish the classification. Only after the complete facts are evaluated should the return position, expense treatment, and any self-employment-tax consequence be computed.
Ready to File?
Filing a 2025 return? The old 100% loss deduction still applies, but you need proper documentation to support any deduction. An accepted written scope may include reconciliation of W-2G forms, statements, and gambling records under the separate federal and NJ rules; no deduction, refund, or tax outcome is promised.
Planning for 2026? The 90% cap is already in effect. An accepted written scope may include specified estimated-payment calculations and analysis of NJ's separate same-year, same-category netting rule, zero floor, and no-carryforward boundary. The client tracks deadlines and transmits payments; no deduction, payment amount, or tax outcome is promised.
Gregory Monaco, CPA LLC d/b/a Monaco CPA · Credential status: verify current individual New Jersey CPA license and CPA-firm registration with the NJ State Board
Livingston, NJ 07039 · Written intake: contact form
Gambling tax services are confirmed in a written scope. This page is informational and does not create a CPA-client relationship.
Tax advice disclaimer: This material is for general educational information only and is not legal, tax, or accounting advice for your specific facts. A CPA-client relationship is formed only through a signed engagement letter.