As legalized sports betting continues to enter new markets, many states’ tax authorities are grappling with ways to effectively track and tax the activities. The federal government continues to invoke decades-old tax laws to tax sports bettors. As these laws are not necessarily effective for states to collect taxes on sports betting, some states have recently taken it into their own hands to propose and pass legislation to ensure sports betting activities are being presented accurately on taxpayers’ returns.
How Is Sports Betting Activities Taxed?
Under Section 61 of the Internal Revenue Code, all income is subject to taxation from whatever source derived. This income can range anywhere from salary earnings, hourly wages, and income earned from tips, all the way to selling assets and even finding money on the street. Also included in this income is money earned from sports betting.
While many taxpayers might view sports betting activities as akin to investing in the stock market – netting the winning investments against the losing investments to report a net position – sports betting (and gambling as a whole) takes a very different form. Winning bets are subject to taxation, and the gross amount aggregated across the year should be reported by the taxpayers in their tax return (Form 1040, Schedule 1, Line 8b). Meanwhile, the gross amount of losing sports bets throughout the year is reported as an ‘Other Itemized Deduction’ (Form 1040, Schedule A, Line 16). This deduction is limited to 90% of gambling losses, a provision from the One Big Beautiful Bill Act of 2025.
The catch – not all taxpayers will file a Schedule A. This happens because taxpayers are allowed a standard deduction in the event that their itemized deductions are smaller amounts. In 2026, the individual (married) taxpayers can claim a standard deduction totaling $16,100 ($32,200).
According to the IRS, following the onset of the Tax Cuts and Jobs Act of 2017, which significantly increased the standard deduction to levels comparable to present-day values, the number of taxpayers claiming the standard deduction skyrocketed to 87.3%. As it relates to sports betting, this means that the majority of taxpayers engaging in these activities are likely to be in a tax situation where they must pay taxes on their sports betting gross wins without being able to deduct their losing bets.
How Do Taxpayers Report Their Sports Betting Activities To The Taxing Authority?
While taxpayers must report their gambling activities on their tax forms, the vast majority of these taxpayers will do so without receiving tax forms from the betting platforms. Betting providers, like DraftKings and FanDuel are required to provide bettors with a Form W-2G, which displays certain gambling winnings and any tax withheld. However, these forms are only required to be issued if the bet generates at least $2,000 of earnings (previously $600) and the winnings are more than 300 times the amount of the wager.
Regardless of whether the taxpayer receives a W-2G, all sports betting activities are required to be reported to the taxing authority. This notion puts the taxpayer in a precarious situation because of two key notions:
- Under most circumstances, the taxing authorities will not receive explicit notification of the sports betting activities.
- Under most circumstances, the taxpayer will either owe more money to the taxing authorities or be in the same position after reporting the sports betting activities.
Thus, it is possible that many taxpayers decide not to report their sports betting activities.
North Carolina’s New Sports Betting Tax Reporting Bill
The state of North Carolina has decided to take on the issue of tax reporting of sports betting activities. According to WRAL, sports betting companies may be required to provide information to the North Carolina Secretary of Revenue on request.
North Carolina Senate Bill 595, which passed the NC Senate, gives the state of North Carolina the authority to request a sports bettor’s identity (including Name, Social Security Number/Tax ID, and Address), a full history of wagers made on their platform, winnings paid out, and any other compliance-relevant account data. This information must be provided upon request, and it can be requested in monthly increments. Simply put, following a passage by the North Carolina House and signing into law by Governor Josh Stein, the state of North Carolina will have on-demand access to sports betting account-level data that it can use to ensure taxpayers are following tax laws associated with sports betting activities.
If passed, North Carolina will join several states that provide similar concepts when it comes to having access to sports betting account records. For instance, in New Jersey, betting platforms must maintain full wager-level logs that can be available for inspection. Pennsylvania and Michigan have laws that allow the Gaming Control Board access to records, which include sports betting wagers.
What makes North Carolina’s sports betting reporting bill unique is that the access to these records will rest in the hands of the Secretary of Revenue (as opposed to the gaming commission or another non-tax-related entity). Thus, upon the bill’s final passage, North Carolina will become the state with the most explicit statutory language authorizing direct tax authority access to sportsbook player data.
Implications For North Carolina’s Bill On The Sports Betting Community
For the most part, the tax laws are unchanged – taxpayers who engage in sports betting must continue to report these activities and (if applicable) pay taxes. What will change has the potential to impact taxpayers in North Carolina and beyond.
For taxpayers in North Carolina, the state taxing authority will now have significantly greater access to their sports betting records. The increase in tax scrutiny should lead taxpayers to increase tax compliance for their sports betting activities. Taxpayers who wish not to report their activities may continue to do so at their own risk, as the North Carolina taxing authority will be able to detect and prosecute these activities far more easily than before.
For taxpayers outside of North Carolina, a new standard has formed as it pertains to state-level tax authority scrutiny over sports betting reporting. While the federal requirements for reporting these activities via the W-2G remain unchanged, North Carolina will have raised the bar for what is acceptable to ask of the sports betting platforms. The increase in scrutiny should lead to greater tax compliance and more tax revenues for the state. Thus, other states may turn to North Carolina as an example and enact laws allowing similar access to sports betting records.
While North Carolina’s new law requires access to sports betting records from providers to the state, the question still remains as to whether there is a simpler solution to the reporting of sports betting activities. As noted in Tax Notes, the laws governing tax reporting of gambling-related activities were written long before the advent of modern-day sports betting. The Form W-2G does not apply to the vast majority of taxpayers, and, given that prediction market wins and losses can be netted (rather than reported as gross amounts), it is unclear why sports betting faces different tax implications. Despite these looming issues, North Carolina’s new oversight laws of sports betting appear to be a step in the right direction toward promoting sports betting tax compliance.