New York Sports Betting Apps Taxes

New York sports betting got underway in July 2019, with commercial and tribal casinos opening retail sportsbooks to take wagers in person. Lawmakers long struggled to reach a consensus on regulating online sports betting in New York, but they made a breakthrough in April 2021 by including legislation in the state budget.

The first New York sports betting sites launched in January 2022 after receiving the final approval of the Gaming Commission. Eventually, New York will be home to nine legal betting apps. Currently, seven online sportsbooks are live, and two more are on the way.

Bettors now have more opportunities to cash winning tickets and earn profits at the state’s sportsbooks and gaming as well as poker tables.

Regardless of your preference for in-person or mobile betting, the tax treatment of your winnings is critical.

That applies to a slot machine hit, lucrative online parlay wager or a winning New York State Lottery ticket. All are gambling income, considered taxable by the IRS and should be reported on your federal and New York income tax returns. New York (especially New York City) has some of the highest tax rates in the country, so one has to be thorough in their due diligence.

What are the tax rates?

Tax rates depend on your annual income and tax bracket. Gambling income is subject to state and federal taxes but not FICA taxes, and the rate will depend on your total taxable income (not just wages) minus deductions (standard or itemized).

Gambling winnings are subject to a 24% withholding for federal tax, though the actual amount you owe on your gambling win will depend on your total income. That tax is automatically withheld on winnings that reach a specific threshold.

The state tax rate ranges from 4% to 8.82%, depending on your New York taxable income, which is the rate your gambling winnings are taxed. If a filer lives in New York City, which collects its own income tax, he or she would owe an additional 3.876%.These tax calculations are estimates and rates can change.

These are broken up differently starting with your Marginal tax rate which is the bracket your income falls into. Then you have your Effective tax rate which is the actual percentage you pay after standard deductions, etc., and operate on a sliding scale depending on filing status and total taxable income. The rules state that when gambling, a person's winnings are to be combined with their annual income; which could move them into a higher tax bracket, hence why it’s important to be aware of gambling income before starting tax preparation.

How to pay taxes?

New York has a graduated income tax wherein the rate you pay increases for the income you make during a year above certain thresholds. The state also has different rates based on whether you are filing as a single person or a married couple.

Please note that New York recently shifted the distribution of its tax rates to affect the highest brackets more substantially. The new system even added two new brackets for those reporting more than $5 million and $25 million in taxable income. For single New Yorkers or those who are married but file separately for the 2021 tax year, the brackets look like this:

• $0 to $8,500: 4%
• $8,501 to $11,700: 4.5%
• $11,701 to $13,900: 5.25%
• $13,901 to $21,400: 5.9%
• $21,401 to $80,650: 5.97%
• $80,651 to $215,400: 6.33%
• $215,401 to $1,077,550: 6.85%
• $1,077,551 to $5,000,000: 9.65%
• $5,000,001 to $25,000,000: 10.30%
• $25,000,001 and up: 10.90%

As for married couples filing jointly in New York during the same time:

• $0 to $17,150: 4%
• $17,151 to $23,600: 4.5%
• $23,601 to $27,900: 5.25%
• $27,901 to $43,000: 5.9%
• $43,001 to $161,550: 5.97%
• $161,551 to $323,200: 6.33%
• $323,201 to $2,155,350: 6.85%
• $2,155,351 to $5,000,000: 9.65%
• $5,000,001 to $25,000,000: 10.30%
• $25,000,001 and up: 10.90%

If you file as head of a household, the state assesses the following brackets on your income for 2021:

• $0 to $12,800: 4%
• $12,801 to $17,650: 4.5%
• $17,651 to $20,900: 5.25%
• $20,901 to $32,200: 5.9%
• $32,201 to $107,650: 5.97%
• $107,651 to $269,300: 6.33%
• $269,301 to $1,616,450: 6.85%
• $1,616,451 to $5,000,000: 9.65%
• $5,000,001 to $25,000,000: 10.30%
• $25,000,001 and up: 10.90%

Who do the taxes get paid to?

The payor of gambling winnings is required to file Forms W2-G with the IRS by the last day of February of the year following the year of prize award. Form 1096, "Annual Summary, and Transmittal of U.S. Information Return," is used to transmit the Forms W2-G to the IRS. Forms are only filed with the New York Department of Taxation and Finance when withholding is required.

If you’re a New York resident, the form you need is the IT-201. According to the New York Department of Taxation and Finance:

“Section 671(b) of the Tax Law and Section 11-1771(b) of the Administrative Code of the City of New York were amended to provide for mandatory withholding on the proceeds of lottery winnings of more than $5,000 and on the proceeds of more than $1,000 from pari-mutuel wagers on horse races with odds of at least 300 to 1.”

Additionally, any gambling winnings that qualify for federal reporting do the same for NY taxes, too.

So gambling facilities within the state will withhold on your behalf “using the highest effective rate of tax for the tax year in which the payment is made, without any allowance for deductions or exemptions.”

When you collect your winnings, the gambling company should have you fill out Form IT-2102-G. That acts just like Form W-2G for any amounts withheld from your winnings for the state. The facility should give you a copy of Form IT-2102-G.

You may find it easier to use your Form W-2G, however, as that will denote your total winnings from that source for the entire year. Take the Box 1 total you put on Line 7a of your IRS 1040 and put it on Line 16 of your IT-201. Specify it as gambling winnings. Then, add up all the amounts withheld for state taxes from all your IT-2102-G forms for the year and add it to your total state withholding for the year that goes on Line 72 of your Form IT-201.

How do they get used?

You may deduct gambling losses only if you itemize your deductions on (Form 1040) and keep a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as "Other Itemized Deductions."

Bettors should expect to receive a W-2G Form if gambling winnings exceeded any of these minimum thresholds during the previous calendar year:

• $5,000 or more from poker tournaments (reduced by buy-in amount).
• $1,200 or more from slot machines or bingo.
• $600 or more from sports betting or any pari-mutuel event (horse racing, etc.), provided the payout was at least 300 times the wager amount.
• $600 or more from daily fantasy sports.

If the winnings were non-cash prizes, such as a vehicle or boat, the fair market value of each prize should be reported.

New Yorkers with winnings in New Jersey or other states may be required to file a non-resident return if gambling winnings exceed $5,000. Even if that threshold wasn’t met, include the winnings on your federal and NY income tax returns.