Ohio Launches Sports Betting; Taxes Loom

On New Year's Day, Ohio finally launched online sports betting. Multiple operators throughout the state began accepting legal sports bets, which drew betters from both within Ohio and nearby states. As with other states that launched sports betting, let’s take a look at how betters may be affected by taxes.

Ohio is one of the least favorable states for gamblers. If you are a recreational gambler, there is no state deduction for gambling losses. You are taxed on your gross gambling winnings. Ohio’s top tax rate is just below 5%. In addition to state tax, most Ohio municipalities assess local income tax. If you are a resident of one of these municipalities, you may also owe local tax. Most follow state regulations and will assess tax on your gross gambling winnings.

So let’s say you are a bettor that accumulates $300,000 in winnings and $285,000 in losses. Although you profited $15,000, you could owe $12,000 in state tax, $3,000 in local tax (assuming 1% local sales tax rate) plus any relevant federal tax. When all tax is paid, your $15,000 profit quickly turns into a net loss.

Unfavorable regulations affect more than just Ohio residents. Any nonresidents that travel to Ohio to bet or to take advantage of sign-up bonuses are subject to the same regulations as residents. Any Ohio-sourced gambling winnings will need to be reported on an Ohio tax return at year-end. However, as a nonresident, Ohio does not assess tax on your first $25,000 of taxable income. If you can keep your gross winnings below this threshold, you will not owe state income tax on the winnings. You will, however, still be subject to your resident state's tax rates.

If you are a professional gambler, these regulations are less applicable. Self-employed individuals, such as professional gamblers, are taxed on their net business profit, rather than their gross revenue. This would allow professionals to net their gross gambling winnings with their gross gambling losses (and relevant expenses) before being subject to the state and local tax rate.

It is important to be aware of the potential complications before opening an account (or gambling in any capacity) in Ohio.