It’s March Madness and that means many sports fans are betting on their favorite team during college basketball’s biggest tournament of the year
Though the NCAA Tournament has already busted many brackets, somebody still has to win their office pool or bracket challenge. Some people online claim those winnings, often under-the-table and informal, are taxable.
Are March Madness bracket winnings taxable?
Yes, March Madness bracket winnings are taxable, including those from your informal office pool, and official bets placed online or at a casino.
WHAT WE FOUND
In most cases, any income is federally taxable unless it’s specifically excluded by law.
Gambling winnings, including those from any March Madness bets or bracket challenges, are considered income and as such are not excluded under federal tax law. The IRS says gambling income includes the fair market value of prizes such as cars and trips, not just cash.
The rules about taxable income apply whether you place your bet in an office pool or at the casino, Mark Steber, chief tax information officer at Jackson Hewitt, said.
For people who prefer to make their bets online, any money that you win from websites such as DraftKings or FanDuel, is taxable income, according to a blog post from TurboTax.
Steber and a spokesperson for the IRS also addressed some common misconceptions about taxable winnings from betting during March Madness.
There isn’t a “de minimis rule” that excludes a certain amount of money from your taxable income. Steber said that “even $1 is technically taxable” under IRS tax law.
Online sports betting websites are required to send you and the IRS a Form 1099-MISC if your net profit is more than $600 for the year, TurboTax says.
If you receive $600 or more through sports betting and the payout is at least 300 times the amount of the wager, casinos or other gambling establishments are generally required to issue you a Form W-2G.
But it doesn’t matter whether you received 1099 or W-2G forms – your winnings are still taxable, the IRS spokesperson told VERIFY.
In some cases, federal income taxes may be withheld from your winnings. But you should still report that money as income. People who did have income tax withheld should claim it as a credit on their tax return, like they would for tax withheld from wages or other income, the IRS spokesperson said.
States that have legalized sports betting may also have their own tax rules for March Madness winnings that differ from federal requirements, Steber said.
In many states, such as Florida, sports betting is considered illegal gambling – and that means your office pool is, too, if there is money on the line. But legal experts told VERIFY partner station WTSP that office pools or bets with friends are unlikely to be prosecuted.
If you do participate in illegal sports betting, that doesn’t mean you’re off the hook for tax liability. The IRS requires people to report their ill-gotten gains, including income from illegal activities.