A new report is shining light on a problem at the IRS that could impact millions of those who enjoy gambling: a huge gap in tax collections and compliance when it comes to unreported winnings. The amount? $13.2 billion.
Sports betting and online gambling in the U.S. has increased in recent years. To address the revenue that might be left out due to underreporting, the Treasury Inspector General for Tax Administration (TIGTA) audited the IRS for signs of missed gambling winnings.
The results of this audit have prompted the IRS to take action to improve compliance. Which taxpayers are affected and what steps will the tax agency take? Here’s what you need to know.
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What if I don't report gambling winnings?
The TGITA report revealed about $13.2 billion in lost revenue due to non-filer gambling winnings. Unreported income was found across nearly 150,000 individuals who reported more than $15,000 per return.
The audit reviewed tax years 2018 through 2020, meaning the $13.2 billion projection could be even higher if more recent filing seasons are taken into account.
That has spurred the IRS to begin enforcement efforts. Starting with taxpayers whose income was at least $100,000, the agency will be sending out delinquency notices (CP59). Taxpayers receiving this notice can expect it as early as October 2025.
The IRS has also vowed to take a closer look at the sports betting and online gambling industries for new ways to identify non-compliance.
Will I get audited for gambling winnings?
The TGITA reports that 77% of the tax gap (the difference between taxes paid versus the amount owed) is due to non-filers. This is why increased enforcement is coming.
But what could that mean for the average gambler? An elevated audit risk?
What you can do:
- Keep good tax records of gambling winnings and losses so if you're audited or claim a related deduction of your return, you’ll have documentation to support your tax position
- Deduct gambling losses by itemizing on Schedule A, where applicable
- Understand that gambling winnings are taxed regardless of whether you receive $5 or $5,000, though how much tax depends on your gambling winnings and losses
Casinos and other gambling establishments generally must report to the IRS (using Form W-2 G) winnings of $1,200 or more from bingo or slot machines, $1,500 or more from keno, and $5,000 or more from poker tournaments.
Also, professional gamblers have different tax implications. They report their income on Schedule C and can generally deduct ordinary and necessary gambling-related expenses.
Still, as the audit report points out, “It is a crime for any taxpayer to willfully fail to file a tax return that is due.” So, what are the consequences for underreporting your gambling winnings?
At what point does the IRS put you in jail?
Potential repercussions for intentionally withholding tax money include (but may not be limited to):
- A fine of up to $25,000 ($100,00 for corporations), and/or
- Imprisonment of up to one year
In the most serious cases, the IRS Criminal Investigation unit gets involved. To avoid potential legal action, you should find out how to pay the IRS if you owe taxes, even if you cannot pay the full amount right away. Also, consult a tax professional if you're unsure whether you owe the IRS.
Also, be sure you know the tax laws surrounding gambling in your state. If you’re unsure how gambling is taxed in your area, check out your State Department of Revenue’s website before you file.
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