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US Taxation of Gambling Winnings and Incentives to Bet

Author

Listed:
  • Karl Whelan

Abstract

Sports betting is growing rapidly in the US after its legalization by the Supreme Court in 2018. This paper describes the treatment of gambling winnings and losses in the federal tax code and shows how the system may incentivize some gamblers to substantially increase the scale of their betting in order to have a chance to win. This incentive stems from the fact that gambling losses can only be deducted if taxpayers are filing for itemized deductions, meaning the scale of gambling losses has to be large enough to push a taxpayer’s eligible deductions over the standard deduction. This incentive to engage in large-scale betting applies mostly to lower and middle-income households.

Suggested Citation

  • Karl Whelan, 2022. "US Taxation of Gambling Winnings and Incentives to Bet," Working Papers 202222, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:202222
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    File URL: http://hdl.handle.net/10197/13073
    File Function: First version, 2022
    Download Restriction: no
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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