State Income Tax Withholdings on Winnings from Sports Wagering
Topics:
Withholding Tax
Governor Reynolds recently signed Iowa Senate File 605 into law. This bill requires taxes to be withheld from winnings from sports wagering in circumstances when federal income tax is withheld from those winnings. The new law is effective January 1, 2026.
Sports Wagering
Iowa Code chapter 99F provides regulation on gambling games and sports wagering. Iowa Code section 99F.1(29) defines “sports wagering” as “the acceptance of wagers on an authorized sporting event or sports-related event by any system of wagering as authorized by the commission.”
Federal Requirements
The Internal Revenue Code requires sports wagering winnings which exceed $600 and are at least 300 times larger than the wager to be reported on a Form W-2G, as with other gambling winnings. For winnings which exceed $5,000, and are at least 300 times larger than the wager, the payor is required to withhold income tax.
For more information on the taxation and reporting requirements for gambling winnings, see IRS Publication 505.
List items for State Income Tax Withholdings on Winnings from Sports Wagering
Taxpayers who participate in sports betting should expect to see state taxes withheld from their winnings, in addition to federal income taxes, when applicable. However, even with winnings from sports betting withheld, a number of variables may impact whether the amount withheld reflects the full amount of taxes owed on those winnings. Taxpayers who are required to file an individual income tax return must still report the winnings from gambling including sports wagering received during the year.
Sportsbooks that provide a platform for taxpayers to place sports wagering bets and which pay out winnings to taxpayers are already required by federal law to withhold on qualifying winnings, as described above. When the requirement to withhold federal income taxes from sports wagering winnings is met, sportsbooks must also withhold state income taxes at a rate of 3.8% of winnings, as with other gambling winnings. If Iowa withholding is required, the withholding agent must register with the Department for Iowa withholding. The amounts withheld from sports wagering winnings must be remitted to the Iowa Department of Revenue.
For more information on withholding tax on sports betting and other gambling winnings, see Iowa Withholding Tax Information on the Department’s website.
