2023 Sports Betting Expansion Outlook

Numerous states launched regulated sports betting in 2022, including states not favorable to gamblers (yes, we are talking about Ohio). The sports betting industry is poised to expand again in 2023, starting with Massachusetts, which went live January 31 (albeit retail betting only). Let’s take a look at the potential expansion states and the tax ramifications:

Massachusetts

Allows a state deduction for gambling losses incurred, not to exceed gambling winnings. Gambling losses must have occurred in Massachusetts-licensed casinos only. Any losses incurred from unregulated sources, or sources outside the state, are not deductible on your Massachusetts return. A 5% flat tax is assessed on income. There is an additional 4% tax imposed, beginning 2023, on income exceeding $1 million.

Texas

As many of those who live in Texas already know, there is no state tax assessed. Any residents with gambling winnings and losses are only subject to federal tax. Any non-residents that gamble in Texas may still owe tax in their state of residence.

Minnesota

Conforms with the federal standard and allows gambling losses to be deducted, not to exceed gambling winnings. However, gambling losses are not an allowable deduction when determining Alternative Minimum Tax. Minnesota has higher-than-average state tax as well, ranging from 5.3% to 9.85%.

Missouri

Conforms with the federal standard and allows gambling losses to be deducted, not to exceed gambling winnings. Residents quickly reach the maximum tax rate of 5.3%, so it is safe to assume your net gambling winnings will be subject to this rate.

North Carolina

Similar to Ohio, North Carolina does not allow gambling losses as a deduction on the state level. Gross gambling winnings are subject to state tax at a flat rate of 4.75%. If you are a North Carolina resident, I would recommend minimizing your gambling activity to avoid tax issues.

Kentucky

There was a brief time when Kentucky did not allow gambling losses as a deduction, but it has since changed its stance and conforms with the federal standard. Kentucky assesses a flat tax of 4.5% on all income.

Georgia

Conforms with the federal standard and allows gambling losses to be deducted, not to exceed gambling winnings. Residents quickly reach the maximum tax rate of 5.75%, so it is safe to assume your gambling winnings will be subject to this rate.

All of the above situations apply to recreational gamblers. Professional gamblers will receive a business deduction for their losses and related expenses incurred during the course of business operations, to the extent of gambling winnings. 

We will continue to monitor if other states emerge as contenders or if there are any updates to state regulations that affect gambling winnings and losses (such as Michigan in 2022).