And… How Much Tax Will You Pay On Sports Betting Winnings in Maryland?
Maryland sports bettors are eagerly awaiting the official start of sports wagering in the Old Line State. The bill has passed, the governor has given his OK and has urged legislators to move quickly. It’s just a matter of time.
Before you Maryland bettors get carried away, you should know about the tax implications on sports wagering revenue. Like, you could win big. Specifically:
- Will I need to pay taxes on my winnings?
- If so, how much?
- If I win money on sports gambling in Maryland, but live in another state, do I still need to pay taxes?
We attempt to answer a few of those questions.
What’s the Tax Rate on Maryland Gambling Winnings?
With sports wagering still awaiting legalization in Maryland, we turn to the world of horse racing for some answers. Maryland is home to Pimlico Race Course, which hosts the Preakness Stakes, the second leg of horse racing’s Triple Crown. Pimlico takes millions of dollars in wagers every year.
So, here are a few general laws and rules from Maryland sports gambling as applied at Pimlico:
- Yes, the Internal Revenue Service (IRS) considers money won on sports gambling to be taxable income, meaning the sports bettor must report the market value of the amount he wins.
- At Pimlico, anyone winning $5,000 or more, or 300 times the amount of their original wager generally has about 25% of the winnings deducted by the Race Course, who then provides IRS Form W-2G to both the IRS and to the winner.
Of course, not all Maryland sports bettors will win such large amounts. Nor will they all place their wagers in a venue like Pimlico. So let’s look at a few other scenarios.
Do I Need to Pay State Taxes on Maryland Sports Gambling Winnings?
The short answer – yes. But there’s plenty more for Maryland sports bettors to keep in mind.
Maryland state law says that income tax will be automatically withheld, as it is from a paycheck, from any winnings that total more than $5,000. This indeed applies to both federal and state taxes. In Maryland, a state resident’s taxes will be withheld at a rate of 9.25 percent, and a non-resident’s taxes withheld at a rate of 7.5 percent.
For winnings of $500 or more that do not have Maryland tax withheld, residents must file Form 502D, Declaration of Estimated Tax, and pay said taxes within 60 days of receiving the prize money. The resident can claim a credit for taxes paid on Form 502D on the ensuing annual income tax return. Any failure to pay the estimated tax due or report the income can result in penalty and interest charges.
Gambling Winnings as a Portion of Total Income
So, for gambling winnings under $500, there’s no 60-day requirement. But, Maryland sports bettors are advised to keep records and hold portions of that money aside in preparation for tax time.
How much will you pay on those winnings? According to marylandtaxes.gov, that depends on the amount of income you have from a given year from ALL sources. In other words, it’s rolled into your general state income tax payment. In Maryland, these levels are as follows:
- $1 to $1,000: 2%
- $1,001 to $2,000: $20 plus 3% of the excess over $1,000
- $2,001 to $3,000: $50 plus 4% of the excess over $2,000
If you file as:
- married filing separately
- a fiduciary
- or if someone else can claim you as a dependent, this is the rest of the tax schedule:
- $3,001 to $100,000: $90 plus 4.75% of the excess over $3,000
- $100,001 to $125,000: $4,697.50 plus 5% of the excess over $100,000
- $125,001 to $150,000: $5,947.50 plus 5.25% of the excess over $125,000
- $150,001 to $250,000: $7,260 plus 5.5% of the excess over $150,000
- $250,001 and over: $12,760 plus 5.75% of the excess over $250,000
If you are:
- married and filing jointly
- filing as head of household,
- or a widow/widower in certain circumstances, this is your tax schedule:
- $3,001 to $150,000: $90 plus 4.75% of the excess over $3,000
- $150,001 to $175,000: $7,072.50 plus 5% of the excess over $150,000
- $175,001 to $225,000: $8,322.50 plus 5.25% of the excess over $175,000
- $225,001 to $300,000: $10,947.50 plus 5.5% of the excess over $225,000
- $300,001 and over: $15,072,50 plus 5.75% of the excess over $300,000
What About Gambling Losses in Maryland?
Maryland sports bettors should not deduct their sports betting losses from their winnings when determining whether, or how much, to pay in taxes. Furthermore, according to Maryland certified public accountants, you can deduct those losses as a miscellaneous deduction on line 28 of Schedule A, Form 1040.
You can only deduct sports betting losses if you itemize your deductions. In addition, you cannot deduct losses greater than your winnings – in other words, if you lose money overall in your sports betting ventures, you simply don’t report any winnings.
Summarizing Maryland Sports Betting Tax Information
Obviously, this information is detailed and may seem complicated for a pastime like sports wagering. Certainly, it’s best to consult an accountant or advisor with any pertinent questions. But in summary, Maryland sports bettors should:
- Be prepared to have taxes withheld, or withhold their own taxes, on winnings of $5,000 or greater
- File Form 502D on sports betting winnings between $500 and $4,999
- Keep track of winnings below the $500 threshold