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The 2026 World Cup is well underway with lots of action from soccer’s biggest stars from all over the world. One aspect of this competition that is getting widespread attention is happening off the field and on spectators’ mobile phones. Since sports betting became legalized in 2018, it has become widespread among sports fans, and this year’s World Cup is no exception. In fact, it is estimated that over half a trillion dollars will be wagered on this year’s matches. However, many bettors are unaware of the unique tax consequences when gambling on sports that can leave many bettors with a large tax bill at the end of the year.
One of the most common misconceptions about betting on sports is that the winnings are considered taxable income according to Section 61 of the Internal Revenue Code. For instance, if a bettor had wagered $115 on the U.S. to win against Paraguay (with odds of -115), then the bettor would have won $100 after the U.S.’s dominant 4-1 victory. The $100 won will be considered taxable income and subject to taxation at the taxpayer’s marginal tax rate.
For taxpayers with low levels of taxable income, a $100 win will be taxed at a 10% federal income tax rate, meaning that the taxpayer will report $100 of income, pay $10 in taxes to the U.S. federal government, and net $90 after taxes. However, taxpayers in the highest tax bracket will pay taxes on this income at a 37% federal income tax rate. This higher rate means that the taxpayer will only take home $63 after taxes.
While sports betting losses can be deducted to the extent of sports gambling winnings, this deduction only comes in the form of an itemized deduction. Since the onset of the Tax Cuts and Jobs Act of 2017 – tax legislation that doubled the standard deduction for most taxpayers – the number of taxpayers who itemize their deductions (rather than take the standard deduction) has dropped considerably.
For instance, if that same sports bettor wagered $100 on Canada to beat Bosnia and Herzegovina (odds of -100), the bettor would have lost as the match ended in a draw. If the taxpayer itemizes their deductions on their tax return, then they can net the $100 loss against the $100 win. In practice, this appears as a $100 increase in gross income and a $100 increase in itemized deductions, resulting in no change in taxable income.
However, if the taxpayer does not itemize their deductions, then the taxpayer still has the $100 increase in gross income. However, absent having a $100 itemized deduction, the taxpayer will only increase their gross income, and the $100 loss will be effectively disallowed as a deduction for tax purposes. The end result is that for taxpayers who do not itemize their deductions, they will have to pay taxes on their winning sports bets without being able to deduct the losses for their losing bets.
Beginning in 2026, the rules surrounding deducting losses become even more penalizing. Even among those taxpayers who itemize their income taxes, they can only deduct 90% of their losses, a provision passed under the One Big Beautiful Bill Act of 2026.
Even beyond the federal income tax laws, sports bettors must also adhere to state income tax laws. These laws apply to the jurisdiction where the bet is placed -- one of the reasons why each bettor’s mobile device must be GPS-located before a wager is placed.
For sports bettors in states like Tennessee and Nevada, winnings will only be subject to federal income taxes, as the state does not levy a tax on individuals. However, in states like New York and New Jersey, which levy a top income tax rate of 10.90% and 10.75%, respectively, the additional state income taxes levied can be material.
Noticeably absent from this discussion are Texas (which also levies no state income taxes) and California (the highest state income tax rate in the U.S. at 13.30%). Many of the 2026 World Cup matches take place in these states, with numerous matches in Los Angeles, Houston, and Dallas-Ft. Worth areas. However, state laws in California and Texas do not permit sports gambling.
In states that do not permit traditional sports betting, prediction markets, such as Kalshi and Polymarket, can provide a useful alternative. Prediction markets operate similarly to sports betting in some respects, as these providers typically allow bettors to wager on player and match outcomes. However, they operate in a market where bettors must create a market based on simple yes (or no) outcomes, and the market dictates the prices.
Importantly, these providers are regulated at the federal level by the CFTC, meaning that it is legal in all 50 states (although many states are contesting this legality), even those that do not allow traditional sports betting. Thus, sports bettors visiting those states for World Cup matches can turn to prediction markets to wager on the outcome of the events.
One key thing that sports bettors do not realize about prediction markets is the beneficial tax properties associated with betting via these channels. As prediction market wagers are not considered sports betting, the gambling rules do not apply. This means that bettors can net prediction market losses against prediction market wins, regardless of whether they itemize their deductions on their tax returns or take the standard deduction.
The vast majority of sports bettors will not receive a tax form from their activities. When betting on traditional sports betting apps, they will only receive a tax form (called a W-2G) if their winnings are more than 300 times the amount of the wager (and more than $2,000). Winning a wager of 300 times the amount of the wager is equivalent to a 9 (or more) leg parlay wager.
When it comes to prediction market wagers, a taxpayer will typically only receive a tax form if they withdraw more than $2,000 from the provider – up from $600 in previous years.
While few taxpayers will receive a tax form for their World Cup sports betting activities, it is important to note that regardless of whether the taxpayer receives a tax form, they must report their gambling activities on their income tax returns. With the onset of technology, it is easier than ever for the taxing authorities to identify potential sports betting activities (such as receiving payments from a sports betting provider). Furthermore, every wager is carefully tracked by these providers, meaning that the taxing authorities can be even more dutiful in ensuring that taxpayers are paying their fair share in income taxes on sports betting activities.
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