26 Mar

Indiana Tax Laws for Sports Betting

What You Need to Know About Reporting Taxable Sports Betting Winnings in Indiana.What You Need to Know About Reporting Taxable Sports Betting Winnings in Indiana.

Sports betting is relatively new to the state of Indiana. The activity was only legalized in 2019, with the first regulated online and mobile sportsbooks popping up later that year. Now that the first meaningful “tax season” has rolled into town, sports betting enthusiasts from Angola to Evansville are all scratching their heads, asking the same painful question…

Do I have to pay taxes on sports betting winnings in Indiana?”

The short answer is, “Yes.” The state government – and federal, too! – wants its “fair share” of everything you make, including a portion of your winnings from gambling. But there are certain stipulations and limitations to be considered, as well as ramifications for failing to report taxable gambling proceeds. The following guide to paying federal and state gambling taxes is designed to help you understand what you must report, who to report it to, how to report it, and what it will cost you.

Know-How: Sports Betting Taxes in Indiana

The federal government and state of Indiana requires all bettors to report proceeds from gambling on their tax filings. This doesn’t just apply to sports betting proceeds, but all gambling verticals, from winnings at the casino or racetrack, to a lofty payout from the Hoosier State Lottery.

As for the IRS, how much tax you pay, if any, will be determined by whether your overall gambling activities resulted in a profit or loss, and, if a profit, how much you made, compared to your standard employment income. Indiana, on the other hand, wants a small portion of your winnings, regardless of such extenuating circumstances.

Please choose from the following topics to learn more, or keep scrolling to learn about each on in turn.

  1. What Forms of Gambling are Taxable?
  2. What is Indiana’s Tax Rate on Gambling Winnings?
  3. How Do I Know if My Winnings are Taxable?
  4. What if I Won a Shared Prize?
  5. How Do I Report Taxable Winnings to the IRS?
  6. How do I Report Betting Proceeds to Indiana?
  7. Can I Report Gambling Losses as a Tax Deduction?
  8. What Happens if I Don’t Report Taxable Bet Winning?

1. What Forms of Gambling are Taxable in Indiana?

All legalized forms of gambling may be liable for federal and state taxation. These include proceeds (winnings) from:

  • Bingo Games
  • Casino Slot Machines
  • Casino Table Games
  • Keno
  • Lottery Tickets
  • Parimutuel Pools (Horse/Dog Racing, Jai Alai)
  • Poker
  • Sports Betting
  • Sweepstakes
  • Other*

*Every form of gambling – meaning anything of value won by staking something of value for a chance to win something of greater value – is taxable. It doesn’t have to be a cash prize, either. If you win a car, you must report its value on your taxes. If you pay $1 to enter an organized coin-toss guessing competition, and go on to win $500, you must report this on your taxes.

Pro Tip! Don’t think that, simply because online sportsbooks are digital, you don’t have to include their winnings in your federal and state tax filings. Legal online and mobile sports betting sites and apps are licensed, regulated, and monitored by the Indiana Gaming Commission (IGC). Digital operators, especially, are required to report all transactions to the tax office. Long story short, to avoid a potential tax audit (or worse), you must report all land-based and online gambling proceeds on your taxes, because the truth is, they probably already know about them.

2. What is Indiana’s Tax Rate on Gambling Winnings?

All gambling proceeds are considered part of your “individual adjusted gross income”, or “personal income”. The current Indiana individual income tax rate (at time of writing) is 3.23%. The proceeds from almost every form of gambling are taxable at this rate. [See How Do I Know if My Winnings are Taxable? below]

For example, if you win $1,000 on a round robin parlay, you’re gong to owe the state of Indiana 3.23% of that payout, or $32.30.

What About the IRS? Oh yes, the federal government will want its share, too, and they can be far greedier than our sate government! However, they only collect tax on sportsbook winnings and other gambling proceeds if they feel you’ve made enough money to be worth their time. Eligibility for taxation is determined by two things – the amount of money (or value) won, relative to the form of gambling you won it on.

You must report all proceeds (wins and losses) from gambling on your federal income taxes. If it’s determined that you’re eligible to pay taxes on it, the IRS is going to scoop a whopping 24% of your gambling profits.

Pro Tip! If you win a sizable amount of money from gambling at a land-based casino / sportsbook, the cashier may withhold 25% of your winnings for tax purposes. If you provide your Social Security Number at this time, the cashier will withhold 28%. While you may feel disappointed at the time, it’s really a benefit, as you won’t have to dig deep into your pockets come tax season. The 24% federal tax is covered and pre-paid, as well as most of Indiana’s tax rate (3% of the total 3.23%). Plus, if it turns out you don’t owe the IRS money on your total gambling wins/losses, you will get that money back as part of your income tax return.

3. How Do I Know if My Winnings are Taxable?

According to the Indiana Department of Revenue, all gambling winnings are taxable.

– Full-year Indiana residents pay tax on all of their gambling winnings, including winnings from riverboats and pari-mutuel horse races (even those winnings from out-of-state sources).

– Nonresidents pay tax to Indiana on gambling winnings from Indiana’s riverboats and pari-mutuel horse racing tracks.

-Source: Indiana Department of Revenue, FAQ Home

You will automatically be taxed for gambling winnings, based on the information provided in your federal income tax return. However, you’ll only have to pay taxes on gambling winnings to the IRS if they meet certain eligibility requirements, as detailed below. Indiana requires you pay taxes on all gambling winnings, regardless of size.

Eligibility for taxation of gambling winnings on your federal income tax return is dependent on two things – the value of the winnings, and the form of gambling on which you won it. Furthermore, some forms of gambling allow you to deduct the original bet from the winnings; others do not.

Important! You must declare all gambling winnings on your federal income tax return, whether you’re eligible to pay taxes on them or not. This information is declared on Form W-2G, provided to you by the establishment that paid out the winnings (casino, racebook, sportsbook, etc.). The state of Indiana will tax your gambling winnings, whether the amount won is eligible for federal taxation or not.

Here’s a breakdown of gambling types, minimum taxable winnings, and eligibility for reduction of wager, as defined by the IRS on Instructions for Forms W-2G and 5754 (as updated by the IRS on February 18, 2021). We’ll also give a few examples below to help you better understand the information in this chart.

Type of Gambling Minimum Taxable Value Bet Reduction*
Bingo Games $1,200 No
Lottery $1,200 No
Keno $1,500 Yes
Poker $5,000 Yes
Parimutuel Pool** $5,000 No
Slot Machines $1,200 No
Sports Betting $600 Optional
Sweepstakes** $5,000 No
Table Games $600 Optional
All Others** $600 Optional

*Bet Reduction refers to reducing the total winnings by the total amount of money wagered to win that amount. Bet reduction may only be applied, where eligible, if you keep viable records of all wagers, wins and losses (as you should). Where bet reduction is “optional”, subtracting bets/buy-ins from the winnings is left up to the discretion of the bettor.

**Applies to horse races, dog races, jai alai, and any other “wagering transactions” where “the winnings minus the wager are more than $5,000,” and only “if the winnings are at least 300 times the amount wagered.”

Example 1

You’ve spent a total of $57 on Bingo tickets over the course of a year, winning a total of $1,246. You cannot reduce the total winnings by the cost of wagers, therefore you must pay the IRS its 24% tax, plus the 3.23% personal income tax rate to the state of Indiana. Your total due on bingo winnings would be ($1,246 * 0.24) $299.04 to the IRS, and ($1,246 * 0.0323) $40.25 to Indiana.

Example 2

You bet $300 in small-time parlay wagers, losing most of them. By the end of the year, your total winnings are $892. You have the option of subtracting bets from winnings, which reduces your total sports betting win on the year to ($892 – $300) $592. This is below the $600 threshold required to pay federal taxes. While you must report these amounts on a W-2G form, you will not owe any taxes to the IRS; only to the state. Therefore your total tax bill is $0 to the IRS, and ($592 * 0.0323) $19.12 to Indiana.

Example 3

You place a total of $500 in sports wagers at BetRivers Mobile, winning a total of $2,175. You also place $800 in wagers at the French Lick Casino Sportsbook, winning $425. Your total bets are ($500 + $800) $1,300, and your total winnings are ($2,175 + $425) $2,600. You will need to pay federal and state taxes on these winnings. However, you have the option of reducing the total winnings by the cost of bets ($2,600 – $1,300 = $1,300). Therefore, you owe ($1,300 * 0.24) $312 to the IRS, and ($1,300 * 3.23%) $41.99 to Indiana.

Pro Tip! Keep a record of all your betting activities in a spreadsheet file or journal. Log all dates, wagers, wins, and losses, categorized by each form of gambling you conduct. Keep any and all bet slips and receipts associated with your gambling activities in a safe place. Indiana’s licensed gambling operators should provide you with a W-2G form for reporting all taxable winnings to the IRS and state government, but these forms may not include losses, or the bet/buy-in amount on wins. Compare and combine the information on the W2-G form(s) with your records to ensure you’re only paying the minimum required tax.

4. What if I Won a Shared Prize?

It’s not uncommon for two or more people to share in a single sum of winnings. Maybe your office pool bought a stack of lottery tickets and got lucky, or you staked your buddy in a poker tournament, and he won. Whatever the case may be, there’s a specific route of action to take when this happens.

What you need is IRS Form 5754, Statement of Person(s) Receiving Gambling Winnings. This form is to be given to the person who received the winnings in their name. This person’s information goes in the top section (Part I), labeled, “Person to Whom Winnings are Paid”. Below that (Part II), in the section labeled “Persons to Whom Winnings are Taxable”, enter the information for each individual who claimed a piece of the prize, and the amount they received.

Do not attach this form to an income tax filing. It must be presented to the establishment from which the winnings were paid; the casino, sportsbook, race track, lottery claims center, etc. They will use the form to create separate W-2G forms, which will be mailed to each person listed. From there, each individual must attach their own W-2G to their income tax papers.

As we learned above, if the total winnings meet or exceed the federal government’s limits, you’ll pay 24% to the IRS. As for state taxes, there are no minimum eligibility requirements. You will owe the state 3.23% on your shared slice of the prize pie.

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5. How Do I Report Betting Proceeds to the IRS?

As previously stated, a W-2G should be provided by the betting established that paid out your winnings. This establishment should also have withheld a minimum of 25% of your winnings to cover most or all of the payment of gambling taxes to the federal and state governments.

You should be given a W-2G Form by the casino, sportsbook, racetrack, etc., at the time that you cashed out the winnings. Or, you may receive one (or more) W-2G forms in the mail come January or February, for the purpose of filing with your taxes. Either way, this form must be filled out and attached to your Federal 1040 Form.

When the gambling establishment withholds 25% (or more) or your payout for tax purposes, it is filed as “Regular Gambling Withholding”. However, in some cases, no percentage of the winnings may be withheld. Lottery prizes, for example, are generally paid in full. If you receive the full amount, it is your responsibility to follow the “Backup Withholding” method.

Backup Withholding means that you, the winner of the prize, are supposed to set aside 24% of your gambling winnings for the IRS. If, at the end of the year, your total winnings are taxable, you will have this money ready and waiting to pay the tax.

When you receive your W-2G(s), most, if not all, of the information should already be filled out for you. If you’re filling some or all of it out yourself, input your information as follows. Note that, due to variable taxation rules by the IRS, you may need separate W2-G forms for each eligible win. Please see the official IRS Instructions for Forms W-2G and 5754 for complete details and rules.

How to Fill Out IRS Form W-2G, Boxes 1-18

Box # Title Description
Box 1 Reportable Winnings The total amount paid out to you.
Box 2 Date Won The day you won the prize (not the day you received the prize, if different).
Box 3 Type of Wager The form of gambling you won on (slot machine, sports bet, poker, etc.)
Box 4 Federal Income Tax Withheld If Regular Gambling Withholding, enter the amount withheld by the gambling operator to cover taxes. If you chose Backup Withholding, and you already made estimated payments to the IRS, enter the amount you paid here. If you chose Backup Withholding, and have not yet made an estimated payment, enter $0.
Box 5 Transaction Enter the ticket number, bet slip number, card number, game serial number, or any other information capable of identifying the winning transaction (if applicable, otherwise leave blank).
Box 6 Race Enter the ID number for the horse race or dog race, or game number for jai alai (if applicable, otherwise leave blank).
Box 7 Winning’s from Identical Wagers If you have any additional winnings from identical wagers (same amount, on same activity/race/game), enter them here.
Box 8 Cashier Enter the Cashier’s ID Number that paid you your winnings (if applicable).
Box 9 Winner’s Taxpayer ID No. Enter your Taxpayer Identification Number (TIN), or Individual Taxpayer Identification Number (ITIN) here. If you don’t have a TIN or ITIN, enter your Social Security Number (SSN). Do NOT leave this box blank.
Box 10 Window Enter the Window ID Number of the cashier that paid your winnings (if applicable).
Box 11 First I.D. As proof of identity, enter your ID number from one form of official identification, such as Driver’s License Number, Passport Number, Military ID number, tribal member ID card number, voter registration card, etc. You may use your SSN, so long as you provided a TIN or ITIN in Box 9.
Box 12 Second I.D. Same as Box 11. Provide a second form of identity verification from the list.
(Not Required) Boxes 13 thru 18 are used to notate taxable gambling winnings and withholdings to your state. According to the IRS, “These boxes are provided for your convenience only and need not be completed for the IRS.” [See How do I Report Taxable Winnings to Indiana below.]

How to Report Information on W-2G on Federal 1040

After your W-2G is complete, enter the following information on the corresponding lines of your Federal 1040.

  • Enter the amount from Box 1 of W-2G, on federal form Schedule 1, Line 8 Other Income. Then, enter Line 9 from Schedule 1 on your 1040, “Line 8: Other Income”. (Do not enter Box 1 from W-2G on Line 8 of 1040 without attaching a Schedule 1, as the amounts listed on Schedule 1 Line 8 and 1040 Line 8 may be different.
  • Enter the amount in Box 4 of your W-2G on 1040 Line 25c, “Other Forms”, Federal Income Tax Withheld. If you withheld “Backup Withholding”, and have not yet paid this amount to the IRS, do not enter that amount here (because you still owe it).

Pro Tip! If you do not receive a W-2G Form in the mail, it doesn’t mean you’re free and clear. You must report all eligible, taxable winnings from sports betting, casino gambling, poker, or any other form of organized gambling you won money on throughout the year.

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6. How do I Report Taxable Winnings to Indiana?

This is where things can get a little confusing, so pay close attention. You’re going to report your total gambling winnings on Line 2 of your Indiana IT-40 Income Tax Form*. The instructions ask you to:

“Enter amount from Schedule 1, line 7, and enclose Schedule 1 _____ Indiana Add-Backs.”

This is NOT the same Schedule 1 you attached to your Federal 1040. They are asking for Indiana State’s Schedule 1 Form, Add-Backs*. You will need to input the amount from Line 8 (“Other Income”) of your 1040, onto Line 2 of your Schedule 1 Add-Backs. Then, input Line 7 from your Schedule 1 Add-Backs, onto Line 2 of your IT-40.

If your gambling winnings were subject to Regular Gambling Withholding, you’ll need to fill out a Schedule 5 Form*, as well. Enter the amount of State Income Tax Withheld (from Box 15 of W-2G) onto Line 1 of Schedule 5. If you have multiple W-2G forms, add all Box 15 amounts together, and enter the total on Line 1 of Schedule 5. Then, enter Line 10 from Schedule 5, on Line 12 of your IT-40.

If your winnings were subject to Backup Withholding (you reserved a portion of your winnings for the purpose of paying state taxes), do not enter this amount on a Schedule 5 (because you still owe it).

*This link leads to the Indiana Department of Revenue’s Tax Forms Download page. It will not automatically start a download. From that secured government page, scroll down to the name of the form you’re looking for and click it to initiate the download of a fillable online form in PDF format.

Pro Tip! Filling out the ‘Not Required’ Boxes 13-18 on a W-2G will make it easier to fill out your IT-40 and associated Schedule forms. Be sure to attach all necessary Schedules, W-2Gs and other forms to your state tax return. If any required forms are missing, you may have to pay higher taxes, or receive a smaller refund.

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7. Can I Report Gambling Losses as a Tax Deduction?

State Income Tax: No. The Indiana Department of Revenue does not allow individuals to deduct gambling losses from their personal income.

Federal Income Tax: Yes, but with limitations. In order to claim gambling losses on your federal return, you must list all losses as itemized deductions. It is only worth itemizing deductions if the total itemization meets or exceeds the value of a standard deduction. The current standard deduction is $12,000 for individuals, and $24,000 for couples filing a joint return.

See the following links for more information.

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8. What Happens if I Don’t Report Taxable Winnings?

Failing to report any or all income, including sports betting winnings, on your taxes is a serious crime. Even if you “accidentally” forget to claim income, you’re still liable for a penalty. As the old saying goes, “ignorance of the law no excuse”. That means you won’t gain any leniency for saying, “Oh, I’m sorry, I didn’t know”.

It’s not even what the state of Indiana will do to you for failing to report “other income” that you need to worry about, so much as what the federal government will do. You can’t report gambling winnings to the IRS, and not report them to the state. Whatever you report to the IRS automatically gets reported to the state. It wouldn’t make since to tell the IRS you won $5,000 betting on sports, then leave that information out of your IT-40. That’s just begging for trouble.

If you fail to report gambling winnings to the IRS, odds are you’re going to get caught. Remember, all regulated gambling operations – online and on land – are required to keep records of all customer transactions, and mandatorily report any and all eligible earnings to the proper tax agencies. That means if you received a W-2G, the IRS got one too. Even if you didn’t receive a W-2G, it’s still probable that the IRS has a record of your gambling activities.

In short, if you don’t report taxable sports betting winnings, or any other gambling related profits, on your federal or Indiana state taxes, you can expect to get either a tax bill in the mail, with an attached penalty (those fines aren’t cheap!), or you may even get audited. The last thing anyone wants is to undergo a tax audit! But that’s the easy end of it. If the government determines you willfully and intentionally committed tax fraud (a.k.a. tax evasion), you could spend up to 3 years behind bars, paying off fines of up to $250,000. Unless you’re living in the lap of luxury, it’s more likely the IRS will slap you with a fine of $100 per act of negligent tax fraud (good faith ignorance of the law), or $500 per act of willful tax fraud (intentional falsification). Learn more here:

Disclaimer: The information provided in this document is for informational purposes only. Although we’ve put extensive hours of expert research into the writing of this document, and do believe it to be entirely accurate at time of writing, we cannot promise its accuracy at your time of reading. Please refer to the information provided by the Internal Revenue Service and Indiana Department of Revenue for up to date rates, forms and instructions.

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Legal Indiana Sports Betting in 2021

BetRivers is licensed and regulated on a state level by Indiana to operate legally. It offers a wide range of sport betting options – every popular game is covered. Mobile options are also covered for an “on-the-go” experience. Our editor pick for safe and legal betting in 2021.

Visit https://In.BetRivers.com