Sports Betting Taxes in 2026: Bonus Bets, W-2Gs, and the New 90% Loss Rule

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This guide is general information about US federal tax rules as of September 2026. It isn’t tax advice. Tax situations vary, state rules differ, and the law can change. Talk to a qualified tax professional about your own situation.

Sports betting taxes used to be simple for people who hedge: winnings in, losses out, pay tax on the difference if you itemize. A change that took effect in 2026 broke that symmetry. If you convert promos or arb, you need to understand it, because it can mean paying tax on money you never made.

The basics

All gambling winnings are taxable income. That includes sports betting profits, bonus bet winnings, and casino wins, whether or not you receive a tax form. You report them as income on your federal return.

Losses are deductible only if you itemize. Gambling losses go on Schedule A as an itemized deduction. If you take the standard deduction, your losses don’t reduce your taxable winnings at all.

Losses can’t exceed winnings. You can’t use gambling losses to create an overall loss that offsets other income.

The 2026 change: only 90% of losses count

The One Big Beautiful Bill Act, signed on July 4, 2025, changed how gambling losses are deducted. For tax years beginning after December 31, 2025, the deduction is limited to 90% of your gambling losses, and still capped at your winnings.

For a break-even gambler, that means paying tax on 10% of their losses even though they made nothing. Win $50,000 and lose $50,000, and only $45,000 is deductible, leaving $5,000 of taxable income.

Why hedgers and arbers are hit hardest

Promo conversion and arbitrage work by winning one bet and losing another. Your real profit is small, but your gross winnings and gross losses are both large. Under the 90% rule, the gap between them becomes taxable.

Example: a bonus bet conversion

You convert a $500 bonus bet at +400, hedged with $1,636.36 at −450. Your real profit is $363.64 either way. But the tax picture depends on which side wins:

When the bonus bet wins, you can owe tax on more than you made, and far more if you don’t itemize.

Example: a $1,000 arbitrage

You stake $475.91 at +115 and $524.09 at −105. Real profit: $23.22. If the +115 side wins:

• Winnings: $547.30. Losses: $524.09. Deductible: $471.68.
• Taxable if you itemize: $75.62, over three times your actual profit.
• Taxable if you don’t itemize: $547.30.

Over a year of heavy arbing, those gaps add up. Some arbers will find the strategy far less attractive after tax in 2026. Run your own numbers before scaling up.

W-2G forms and reporting thresholds

Sportsbooks issue Form W-2G for certain large wins. For sports bets, a W-2G is generally required only when the winnings are at least 300 times the stake and exceed the reporting threshold. Under the 2025 law, that threshold rose to $2,000 for 2026 (from $600) and will be adjusted for inflation in later years.

In practice, most straight bets and promo conversions never trigger a W-2G. Big longshot parlays sometimes do. Either way, the income is taxable whether or not a form is issued.

Record keeping

The IRS expects gamblers to keep an accurate record of winnings and losses. For sports betting, that means:

• A log of every bet: date, sportsbook, market, stake, odds, result, and profit or loss.
• Annual win/loss statements from each sportsbook. Most US books let you download one from your account.
• Deposit and withdrawal records from your bank.

If you use a tracking tool, export your data at the end of each year and keep it with your tax records.

Other things to know

Bonus bets. Winnings from a bonus bet are taxable. A losing bonus bet generally isn’t a deductible loss, since you didn’t risk your own money.

State taxes. Most states with an income tax also tax gambling winnings, and their treatment of losses varies. Some don’t allow gambling losses to be deducted at all. Check your state’s rules.

Estimated payments. If you make a meaningful profit, you may need to make quarterly estimated tax payments to avoid underpayment penalties.

Professional status. A small number of bettors qualify as professional gamblers and report on Schedule C. The bar is high, and the 90% limit applies to professionals too.

Legislation. Bills to restore the full deduction have been introduced, but as of this writing the 90% limit applies to 2026 returns.

What this means for your strategy

• Promo conversion is still profitable, but budget for tax, especially in years when many of your bonus bets win.
• Itemizing matters. If your gambling activity is large, itemizing may be worth it even when you otherwise wouldn’t. A tax professional can tell you.
• Arbitrage margins shrink after tax. Model it before committing large turnover.
• +EV betting is affected too, since gross winnings and losses are large relative to net profit.

Set aside part of your profits for taxes throughout the year. Our bankroll guide covers keeping betting money separate, which also makes tax time much easier.