Sports betting taxes: the W-2G, withholding and losses

The IRS instructions for Form W-2G added a section on sports wagering for 2026. A sportsbook files a W-2G for winnings that meet the reporting threshold “if the winnings are at least 300 times the amount of the wager”. On the threshold, the instructions say: “The minimum threshold amount for payments made in calendar year 2026 is $2,000.” For calendar years after 2025, the threshold “will be adjusted yearly for inflation.”

A payout that misses either test comes with no W-2G and is still income.

IRS Topic 419 sets two conditions: “You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040).” (IRS) And “The amount of losses you deduct can’t be more than the amount of gambling income you reported on your return.” (IRS) Someone who takes the standard deduction reports every winning and deducts no loss.

Public Law 119-21, signed July 4, 2025, rewrote IRC §165(d) so the deduction for wagering losses “shall be equal to 90 percent of the amount of such losses during such taxable year”, still no more than the year’s gains from wagering. Its section 70114(b), quoted in the amendment notes, says the change “shall apply to taxable years beginning after December 31, 2025”, so the 2026 return, filed in 2027, is the first it reaches. For someone who itemizes, a year that wins $100,000 and loses $100,000 can deduct $90,000 of those losses, which leaves $10,000 taxable on a year that broke even.

The 90% gambling-loss limit works that year through two brackets, and what bettors get wrong about taxes covers the mistakes people make with it.

Under the W-2G instructions, a sportsbook withholds when the winnings minus the wager exceed $5,000 and the winnings are at least 300 times the wager: “Withhold 24% of the proceeds (the winnings minus the wager).” A payout of $5,000 or less over the wager has no regular withholding.

Backup withholding is separate, at the same 24%, when the winner gives the sportsbook no taxpayer identification number (TIN) on winnings that aren’t subject to regular withholding. In the instructions’ words: “Backup withholding applies if the winnings meet or exceed the applicable reporting threshold but not more than $5,000 and are at least 300 times the wager.”

The IRS has issued no guidance on how event contracts are taxed. Of the people we’ve seen file a prediction market year, gambling treatment is one of the three most common ways, beside standard capital treatment and Section 1256. Under gambling treatment the rules above apply, the 90% limit included; the other two routes sit outside §165(d).

Are prediction markets taxed as gambling? sets out the argument on each side, and arbitrage betting taxes covers a year spread across sportsbooks. What each prediction market sends at tax time is on prediction markets by venue.

Realize builds forms for event contracts traded on prediction markets, not for a sportsbook’s W-2G year. For people with a sportsbook year beside their prediction market trades, a call with our team can end in a referral to an approved CPA.