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A recent analysis found that the United States government has lost out on around $1.5 billion in tax revenue since sports betting became allowed in 2018. Due to tens of thousands of people’s failure to disclose their gambling earnings, there is a large tax collection gap.
Form W-2G is issued for winnings over $15,000. Form 148,908 persons received this form, according to the Treasury Inspector General forTax Administration. They failed to file tax returns in spite of this, resulting in an estimated $13.2 billion in undeclared gaming revenue. There is a significant tax payment deficiency as a result of this noncompliance.
The report partly blames the Internal Revenue Service (IRS) for failing to address the issue. It states that two-thirds of these non-filers were never notified by the IRS regarding their unpaid taxes. Additionally, the report highlights a significant issue with W-2G forms that were missing taxpayer identification numbers, making it difficult for the IRS to track these individuals.
The Inspector General’s report recommends that the IRS take immediate action to recover unpaid taxes for gambling winnings from 2018 to 2020. These were the first three years following the Supreme Court’s ruling that struck down the Professional and Amateur Sports Protection Act, which opened the door to legal sports betting in many states.
Moreover, the report urges the IRS to improve its regulatory oversight of online sports betting transactions and expand its existing language to explicitly cover sports betting. By implementing these measures, the IRS could strengthen its ability to track winnings and collect taxes more effectively.
As legal sports betting continues to grow, addressing these regulatory gaps is essential for ensuring proper tax collection and compliance with federal law.