If I have been using PayPal to withdraw gambling winnings, I know I will receive a 1099K. I have made about $4,000 in withdrawals from PayPal. What will the tax rate be?

[Gchan2430]

I live in Michigan and am married filing jointly. I have basically broken even on my wagers, but will be using the standard deduction. Will it just be added to my income and taxed at my normal federal and state rate? Or will there be higher taxes I have to pay?

[Critter-3]

Since they are gambling winnings you simply  need to report them as such on your return  and  the losses can only be reported on the Sch A if you itemize.

[xmasbaby0]

Gambling

To enter the W-2G  or other documents For your Gambling winnings--Go to Federal>Wages & Income>Less Common Income>Gambling Winnings

You can enter your winnings, and then keep clicking through the interview to enter gambling losses.

https://www.irs.gov/help/ita/how-do-i-claim-my-gambling-winnings-and-or-losses

Gambling winnings are taxable income.  Losses are an itemized deduction.  If you do not have enough itemized deductions to exceed your standard deduction, your losses will have no effect.

https://blog.turbotax.intuit.com/income-and-investments/how-are-gambling-winnings-taxed-8891/

https://ttlc.intuit.com/questions/1900352-can-i-deduct-my-gambling-losses

2021 STANDARD DEDUCTION AMOUNTS

SINGLE $12,550  (65 or older + $1700)

MARRIED FILING SEPARATELY $12,550  (65 or older + $1350)

MARRIED FILING JOINTLY $25,100  (65 or older + $1350 per spouse)

HEAD OF HOUSEHOLD  $18,800  (65 or older +$1700)

Legally Blind + $1350

[rjs]

Your gambling winnings will be taxed at your normal tax rates, the same as any other ordinary income. But note that gambling winnings are taxable when you win, whether you leave the winnings in an account or take them out. It's income when it goes into your PayPal account, not when you take it out of the account.

[Opus 17]

People have to be very careful about the churn rate with sports betting.  Suppose you win $100,000 but you lose $100,000 so you break even. That will be reported on your tax return as $100,000 of income. That will add to your adjusted gross income and may change your eligibility for making deductible IRA contributions or receiving other tax deductions and credits.  Then, you can take a tax deduction on schedule a for your losses. But if you don’t already itemize, you will not get the full benefit of the deduction and some of your winnings will end up being taxable even though you theoretically broke even.  For example, suppose you are married and have $10,000 of itemized deduction so you would normally use the standard deduction of $25,000. If you have $10,000 of winnings and $10,000 of losses so you break even, the $10,000 is taxable income, and the $10,000 of losses is an itemized deduction, but since your itemized deduction is less than the standard, you can’t actually deduct the losses so you will pay full income tax on the $10,000 of winnings. 

You don’t have to worry about the 1099K from PayPal for withdrawing part of your winnings, you have to worry about the W-2 G from the sports betting company that will report your winnings for the year.

[Gchan2430]

So it will be like I made $4000 more income. That's not too bad, taxwise. If I report the W2G and 1099K, will I be taxed twice?

[Opus 17]

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@Gchan2430 wrote:

So it will be like I made $4000 more income. That's not too bad, taxwise. If I report the W2G and 1099K, will I be taxed twice?

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It's unclear if PayPal is required to issue a 1099-K in this case, because the payments are coming from someone who will already be issuing a W-2G (assuming it is a gambling operation that complies with US tax law.)

You are only required to report your income once.  If you get duplicate paperwork, there are two or three different ways that can be handled, which someone can help you with in February. (It's also possible the IRS might change how 1099-Ks are reported, since there will be so many more this year than before.)

The issue for gambling sites is that your winnings are per bet (or maybe per day) and are not aggregated.  Suppose you make 50 $10 bets on this week's NFL schedule.  5 bets pay off 10:1 and you lose the rest.  That will be reported as winning $500 and losing $400.  If you do that every week, your tax paperwork will show you won $8000 and lost $6400.  That $8000 is taxable income even though you "broke even", and you might or might not be able to deduct the losses.

Or suppose over the course of the year, you win $10,000 and lose $6000.  You are able to cash out the $4000 you mentioned.  But your W-2G will show you won $10,000 and $10,000 is your taxable income.  You might be able to deduct the $6000 in losses if you itemize your deductions, but if you take the standard deduction, you can't deduct your losses and you pay income tax on the extra $10,000 of income. 

[Rjd31118]

I use my paypal acccount for my sportsbetting & withdraw daily from each sportsbook used from the day prior into my paypal balance. I received a 1099K from paypal for 150k of transactions and my winnings are around 12k for round numbers. What would be the best approach ? 

[BV94]

i am in this same exact situation! Currently trying to search for an answer as well. 

I have W2s also that i need to claim so i am confused if this all has to be claimed twice now. 

[AbrahamT]

So you have two options, Option 1 is  to report just one tax form and then wait for the CP notice that imputes the income to them after they file. Or report both forms after and back out the duplicate income as follows,

W2 G Income, hit magnifying glass ,type W2G, then jump to W2G

 For the K-1 income reporting, Personal income, then Less Common Income, then Prizes, Awards and Gambling Winnings, then update until you reach this screen

 

And then finally, to back out the duplicate income Go into Less Common Income, Misc Income, Lets work on Misc income,, Did you receive Other Wages-answer Yes till you get to the screen Any Other Income, hit yes, then source of Other Income, Other, then in description enter duplicate income and put a negative 60,000 like this

[Anonymous86]

I have been issued a 1099-k by PayPal for a huuuge amount but none of it is actually my income. How do I even prove that it is not my income. Can I simply show the payment sent to betting site vs payment received via betting site as the proof ?

[AmyC]

First things first. First, enter the 1099-K as many times as necessary for each category. Then, the IRS will verify that the totals match. If the IRS chooses to audit you, you can show them the paper trail.

First, grab a calculator or make a spreadsheet. Next, go to the income section, scroll down to Other Common Income. Select income from 1099-K. 

Since you received a 1099-K for multiple things, you have to break it down for each category.

• If you had hobby income, select that button, enter the 1099-K information except the income. Instead, use your calculator determine all income related to hobby and enter that amount.
• Next, personal item sales, enter the 1099-K information again except for the income. Use the calculator and determine the personal item sales.
• Continue doing this through all of the options that apply to you. 

Enter the same 1099-k information over and over but with the correct amount for each category.

@Anonymous86

[Kris52]

I have the same question. Received about $500k in 1099k from PayPal. They were mostly withdrawals from various gambling sites, not winnings since I deposited the money first. How do I reconcile this?

[Anon95]

Same here!  Just got a 1099-K from PayPal for over $100k but I didn't actually win $100k on the gambling site.  It was a lot of withdrawls that made the total go so high.  Theoretically, I could use PayPal to deposit $500 into the online casino and then immediately use PayPal to withdrawl the same $500, do that 200 times over and reach $100k in withdrawl transactions without ever actually gambling a penny of it.  How does the IRS reconcile this?  Do we enter the PayPal withdrawls reported on 1099-K as income from online gambling but deduct the PayPal deposits to reach a "net" income?

[Anonymous86]

I was able to reach out to CPA regarding this matter and what I was told is I have to report 1099K as income but use the schedule A for itemized deductions and report up to the same amount as my gambling losses ( I actually lost during the fiscal year 2022). The only caveat with this is the AGI will be super high and in case if we get audited be ready with the paper trial

@Anon95 

@Kris52