With more US states legalising online sports betting in recent months, and an estimated $15.5bn to be wagered on March Madness alone, Jackson Hewitt Tax Services ran a report on whether American adults knew about the tax implications of their respective gambling winnings.
The report found that 62% of taxpayers were unsure of how they should report the money they had won from sports bets and gambling.
Also, 48% of the people asked believed that cash winnings from sports bets were only taxable if their state had legalised sports betting. This is inaccurate, as all income must be reported to the IRS.
The official IRS rules state that earnings from sports bets and gambling are fully taxable, even if the winnings are from foreign countries and include international wagers.
They must be announced on Form 1040 and listed as ‘other income.’ This applies to both federal and state income tax returns.
The ‘other income’ section also encompasses winnings from casinos, game shows, raffles and state lotteries.
Mark Steber, Chief Tax Information Officer at Jackson Hewitt, said: "We saw in our survey that taxpayers are confused and need the guidance of a tax professional to help them correctly report additional sources of income like cash winnings from gambling.
“As sports betting becomes more available and accessible to Americans, it is important for taxpayers to know the intricacies of federal and state tax law.
"If these earnings are reported incorrectly, or not at all, there is a major risk for the taxpayer: they could be penalised by the IRS, their state, or even audited."