The Good, Bad, and Ugly of 2025 Gambling Tax Law Changes

Posted on December 23, 2025 by Russ

With Christmas just two days away and Congress now on recess, we can look back at 2025 and accurately view the changes in tax law towards gambling.  There was some good, some bad, and one very ugly change.

The Good: The threshold for issuance of most 1099s and slot machine W-2Gs will change in 2026 to $2,000 (and it’s indexed to inflation thereafter).  The threshold has been $1,200 since the 1970s.  Based on inflation, $1 in 1975 is worth over $6 today.  Moving to $2,000 is definitely a step in the right direction.  I do need to point out that nothing has changed as to what is taxable (everything, even a gambling win of $1).

The Bad: Oklahoma is going after nonresident gamblers and there are definite constitutional questions involved.  If you’re a nonresident of Oklahoma and receive a W-2G at an Oklahoma casino and you don’t file an Oklahoma tax return, expect to get a letter from the Oklahoma Tax Commission.  You may be thinking, “Russ, that income was earned in Oklahoma; why wouldn’t it be taxable to Oklahoma?”  And that forces us to face a constitutional issue.

All casino gambling in Oklahoma is on Indian reservations.  Generally, these are sovereign territories not subject to state income tax.  The Oklahoma Tax Commission is taking the position that this rule doesn’t apply to gambling winnings.  An Indian tribe can voluntarily cede sovereignty, and a tribe is required (in order to have casino gambling) have a compact with the state.  However, I’m unaware of any tribe that has ceded this for taxes.  There is ongoing litigation on this issue–but because of federal law each individual must first go through the appeals process in Oklahoma, then file a lawsuit.  Eventually, a case on this issue will go to the Supreme Court–but it’s likely going to be many years before this happens. Until then, nonresidents need to be wary about gambling in Oklahoma.  It’s especially bad for amateur gamblers as Oklahoma limits itemized deductions to $17,000.

The Ugly: The One Big Beautiful Bill’s provision limiting gambling losses to 90% will go into effect for 2026. (This provision also limits business expenses for professional gamblers to 90% of expenses incurred.)  While I do expect this provision to be repealed eventually, I have no idea if this will occur in 2026 or 2035.  (If it is repealed in 2026, I expect the repeal to be retroactive to January 1.)  This is going to hurt all gambling–and state revenues in states that have enacted high taxes on casino companies (i.e. Illinois, Pennsylvania, etc.).

Will this get repealed in 2026? If our Congress functioned normally it would; however, what I see is very dysfunctional.  It’s more likely than not that this provision will not be repealed in 2026.

What will 2026 bring to us? Probably very little in the way of change.  I expect legal pressure on sweepstakes gambling and prediction market gambling (it’s quite likely both will be entirely gone from the United States by December 2026).  Otherwise, it’s an election year; historically, little happens in such years.  Only time will tell if that’s the case for 2026.

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IRS Interprets One Big Beautiful Bill to Increase W-2G Threshold to $2,000

Posted on December 16, 2025 by Russ

As I reported back in July, §70433(d) of the Tax Code was changed by the One Big Beautiful Bill (OBBB):

(d) APPLICATION TO BACKUP WITHHOLDING.—Section 3406(b)(6) is amended—
(1) by striking ‘‘$600’’ in subparagraph (A) and inserting ‘‘the dollar amount in effect for such calendar year under section 6041(a)’’, and
(2) by striking ‘‘ONLY WHERE AGGREGATE FOR CALENDAR YEAR IS $600 OR MORE’’ in the heading and inserting “ONLY WHERE IN EXCESS OF THRESHOLD.”

But that’s not the Tax Code section governing issuance of W-2Gs.  That Code section is §3402(q) of the Tax Code (and related regulations) and it was not changed by the OBBB.  The question became, would the IRS interpret this to mean that W-2Gs would be issued (for slot play) at $1,200 or $2,000? 

The IRS officially never answered the question.  Today, the IRS released the draft Form W-2G for 2026 and the draft instructions for the W-2G.  Those instructions state,

The minimum threshold amount for payments made in calendar year 2026 is $2,000.

So we have a bit of good news on the gambling front for taxpayers (and casinos). I expect that sign I pass daily noting “$1,199 Jackpots” will undoubtedly change next year to “$1,999 Jackpots.”

I do need to point out whether or not you receive a W-2G does not change whether your gambling winnings are taxable (they are).  And given that in 2026 only 90% of gambling losses are deductible (though there are efforts to repeal that portion of the OBBB) keeping a contemporaneous gambling log is more essential than ever.

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Shocking: State Taxes Matter to Hockey Players

Posted on December 9, 2025 by Russ

I grew up in Chicago, and have been a lifelong fan of the Chicago Blackhawks.  They’ve been, to put it kindly, lousy over the past few years (after winning three Stanley Cups from 2010-2015); however, there are now signs that they’re improving.  So far, they’ve been rebuilding via the National Hockey League (NHL) draft.  Interestingly, in this morning’s The Athletic there is a story titled, “Does state income tax matter to NHL players? Response is emphatic yes — ‘Make more money.'”  (Link may require registration)

Hockey players in ‘free agency’ can choose among 30 teams playing throughout the United States and Canada.  The Dallas Stars, Florida Panthers, Nashville Predators, Seattle Kraken, Tampa Bay Lightning, and Vegas Golden Knights play in states where there is no state income tax.  The Athletic’s survey showed that 86.3% of responders (out of 117) said that it matters.

I know it’s shocking to those on the left, but rational individuals make decisions based on money.  I used to live in California; state income tax took about 10% of my income.  I now reside in Nevada; state income tax takes none of my income.  The career span of an accountant is far longer than an NHL player; it behooves NHL players to make as much money as they can in their few years in the league.  It’s one thing to make $5 million in California (where state taxes will take 14% of the amount made); it’s another to make $5 million in Dallas, Fort Lauderdale, Las Vegas, Nashville, Seattle, or Tampa where state taxes will take 0% of the amount made.  (True, all NHL players will still face ‘jock taxes’ on their road games.  But half the games played are at home, and that’s a big advantage.)

Yes, there are other factors that come into play: family, the team you would be playing for (do you like the coach/staff, other players; the chance that you could win a Stanley Cup), and climate (another pro for all the cities noted above except Seattle) are three that immediately come to mind.  But the idea that taxes don’t influence decisions is laughable.

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New Jersey: We Delayed Processing Your Extension Payment So We’re Going to Penalize You for Our Error

Posted on November 26, 2025 by Russ

Two clients of ours timely filed their federal and New Jersey extensions on April 15th, paying by electronic debit.  (One filed at 7am and the other at 12 noon, well before the midnight deadline.)  Both clients were waiting on K-1s, so they couldn’t file in April.  They both timely filed their returns (one in June, the other in October) and both asked for refunds.  Imagine the clients (and our) surprise when New Jersey assessed the late filing penalty!

New Jersey is notorious with tax professionals for taking a long time to process electronically filed returns.  This year, the state took one week to process returns (and extensions) filed around April 15th.  Thankfully, tax professionals can run reports that prove the return (or extension) was timely filed.  The report, called an “Electronic Postmark Report,” shows the exact time the return (or extension) was transmitted.

What is New Jersey supposed to do when they late process a payment?  New Jersey is supposed to back date it when the return or extension is timely filed to the filing date (here, April 15th).  My first client responded to the notice and (eventually) New Jersey agreed that it was their fault, and the payment date was changed to April 15th.  That client has received his refund.  My second client will have to go through the same process and he, too, will eventually receive his refund.

This is also a reminder to you that many notices sent by tax agencies are wrong in part or in whole.  Do not blindly pay a notice!  Send it to your tax professional and have them check it for accuracy.  Thankfully, both of my clients did that.

As for New Jersey, it would be nice if you either timely processed electronically filed extensions and returns or fixed this systemic issue…but I’m not holding my breath.

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Kalshi Preliminary Injunction in Nevada Dissolved; Kalshi Likely Soon Gone from State

Posted on November 25, 2025 by Russ

This morning, a judge here in Nevada dissolved Kalshi’s preliminary injunction against the Nevada Gaming Control Board.  That injunction (now gone) prohibited Nevada from stopping Kalshi’s sports betting–excuse me–sports contracts from being offered in the state.  While I expect Kalshi to quickly file an appeal (which would be with the 9th Circuit Court of Appeals), it’s likely that Kalshi’s days in the Silver State are limited.

As I said in my post last week, gambling has been historically regulated at the state level.  Kalshi being allowed by the Commodities Futures Trading Commission (CFTC), a regulator that does not focus on gambling, had to do with general predictions.  Sure, Kalshi can (based on CFTC rulings) offer whether or not the Epstein files will be released.  But does it make sense they can offer a contract on whether the Bears will beat the Eagles on Friday?

The only certainty here is that further court actions are coming.

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Are Prediction Markets Sports Betting Products Doomed in the Long-Term?

Posted on November 20, 2025 by Russ

Prediction markets are another new phenomenon. Kalshi, PolyMarket, and others offer predictions on things like, “Will the Epstein Files be released by the end of 2025?”  They also offer sports predictions which I believe are clearly sports betting by any other name.

In tax (which I’m qualified to talk about) and law (which I’m not qualified to talk about, except for tax law) there is a doctrine called substance over form.  Here’s an example we can all agree on: I pay you $10,000 for consulting work.  I wrongly issue you a Form 1099-INT (showing interest income) instead of a Form 1099-NEC (which shows non-employee compensation).  You should report the income on your tax return as non-employee compensation.

I’ve discussed this doctrine before in the context of Daily Fantasy Sports (DFS) and concluded that DFS is gambling; it’s yet another instance of the Duck Test.  For those who don’t remember, the Duck Test is that if something looks like a duck, walks like a duck and quacks like a duck, it just may be a duck.  Prediction market sports predictions look, walk, and quack like sports betting.   I have bad news for those who partake in sports prediction markets: it’s sports betting by any other name, and I believe the courts will force such prediction markets to obtain licenses from states in order to offer these products.

The problem for the prediction market companies is that gambling has historically been regulated by states, not the federal government.  Currently, several states have filed lawsuits against prediction market companies for offering sports predictions; the prediction market companies initially won in Nevada but lost in Maryland.  Both cases have been appealed, and this looks to me to be headed to the Supreme Court.  Given how this has historically been treated I think the prediction market companies face an extremely uphill battle in the long-term.

I’ve been asked by clients how the IRS will look at sports prediction income (from prediction markets).  I believe the IRS will conclude it’s gambling winnings. For there to be wagering (aka gambling) income, there must be a prize, consideration, and an element of chance (and not be defined by the Tax Code as something else).  Sports predictions meet this definition and have not been defined by the Tax Code as something else.  Yes, the Commodities Futures Trading Commission (CFTC) treats sports predictions as contests; however, the IRS is in no way bound by the CFTC’s actions.

Now, it may take a couple of years for this to all play out (courts do not move quickly and the IRS is known for being inefficient). Unfortunately, the long-term future for sports predictions within the prediction companies looks poor.

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The Shutdown

Posted on October 1, 2025 by Russ

Once again there’s a government shutdown. What does it mean for taxes?

First, deadlines and responsibilities don’t change just because there’s a government shutdown. You still owe tax, and if you’re on extension your taxes are still due (generally) on October 15th.  If you use the excuse, “The government shut down, so I’m not going to file or pay,” your chance of winning that argument is zero. Don’t try it.

For now, it’s business as usual at the IRS. The IRS is using Inflation Reduction Act funds to stay fully staffed. Unfortunately, there’s about five days of funding left; that means the IRS will likely run out of funds next Wednesday, October 8th.  When that happens, it’s likely there will be little or no phone support, correspondence will start being accumulated, and IRS counsel (dealing with legal issues) may be furloughed.  If you need to reach the IRS, call ASAP.

If this shutdown lasts any appreciable amount of time, it will add to the challenges the IRS faces. The IRS is already facing (a) massive tax law changes, (b) ancient computer systems, and (c) probable budget cuts. If you add backlogged work you have a nightmare for anyone who has to deal with the IRS on a regular basis. (And yes, that’s me.)

One thing that’s likely to continue during the shutdown are automated notices. Consider a taxpayer who gets an automated notice and timely responds. Will that response get noted so that a second notice doesn’t get generated?  Who knows.

I hope that this gets resolved quickly, but the reason I wrote when that happens above rather than if it happens is that I’m convinced this will take a number of weeks to get resolved. I think the best case is two weeks, but I wouldn’t be surprised if this takes a month or longer. This is one prediction I really hope I have wrong.

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Pittsburgh Sacked

Posted on September 26, 2025 by Russ

Jock taxes impact nonresident athletes (and others) who perform in out of state venues.  Let’s say you’re in the National Hockey League (NHL), playing for the Vegas Golden Knights.  You play a game in Pittsburgh.  You now owe tax to Pennsylvania and, because Pittsburgh has a nonresident tax on performers, to the city of Pittsburgh.

Pennsylvania law allows a “Second Class City” (yes, Pittsburgh is literally that–but it’s actually defined by Pennsylvania law as a city with a population of more than 250,000 bet less than one million) to impose up to a 3% tax on earnings at sports venues for nonresidents. However, the Pennsylvania Constitution (article VIII, § 1) states, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.”  Pittsburgh residents pay a 1% earned income tax plus a 2% school district tax; nonresidents pay 1% on income plus a 2% “Facility Fee.”

Three NHL players plus the players associations for the NHL, NFL, and major league baseball sued Pittsburgh.  They won in the lower courts, but Pittsburgh appealed to the Pennsylvania Supreme Court. Yesterday, the court ruled that the 2% Facility Fee is indeed unconstitutional.

The court noted that they had to determine, “…whether there exists ‘some concrete justification’ for treating the relevant taxpayers as members of distinguishable classes.” If the court couldn’t find that, the tax would be unconstitutional.

And that’s what the court found:

Here, the City does not provide concrete reasons that would justify taxing nonresident athletes and entertainers more than resident athletes and entertainers. Instead, the City once again argues that the facility fee “does not impose an unequal tax burden on nonresidents” because it actually equalizes the tax burdens of resident and nonresident performers. Residents who perform at the stadiums are taxed three percent of what they earn (one percent to the City and two percent to the School District), and now—because of the facility fee—nonresidents also pay a three percent tax. The City maintains that a tax which equalizes the burdens between two groups of taxpayers cannot violate the Uniformity Clause. [citations omitted]

When an argument loses at two lower courts, you might think about finding something else as backup for your cause. Pittsburgh didn’t. The result wasn’t good for the Second-Class City:

Because the two percent Pittsburgh School District tax cannot be used to justify the facility fee in our Uniformity Clause analysis, and because the City of Pittsburgh has not supplied a “concrete justification” for treating resident athletes and entertainers differently from nonresident athletes and entertainers, we agree with the lower courts that the facility fee is unconstitutional. [citation omitted]

Pittsburgh will need to repay a lot of athletes, and this is definitely going to put a strain on the Steel City’s finances. It’s also a reminder that uniformity means just that.

 

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About That List of Occupations Eligible for “No Tax on Tips…”

Posted on September 5, 2025 by Russ

You may have seen a list of occupations that are eligible for the One Big Beautiful Bill’s “No Tax on Tips” provision.  And perhaps your occupation is on that list, and you’re thinking, “Wonderful! My taxable income is going down!”  Perhaps that’s the case, but there’s a chance that won’t be true.

The problem, one noted quickly by Tom Gorczynski (and I agree completely with Tom), is that there are two parts to qualify for this tax break.  First, the occupation must be one where tips were customarily and regularly received prior to 2025.  Second, the occupation must be one which is not a “Specified Service Trade or Business (SSTB).” 

What is an SSTB? The Tax Cuts and Jobs Act (TCJA), the tax bill that passed during the first Trump Administration, allowed for a new deduction (the deduction for Qualified Business Income).  However, certain businesses–called Specified Service Trade or Businesses–had limitations built into this deduction.  Generally, if your business is one based on the reputation or skill of the employee or owner (such as attorneys, tax professionals, and consultants/personal coaches), you’re an SSTB.

If we look at the list published by Treasury, there are numerous SSTB occupations listed.  For example, a tennis coach is clearly an SSTB. Sure, he may have receive tips but the second part of the test will disqualify that coach from receiving this tax benefit.  (Of course, many of the occupations listed are absolutely not SSTBs, such as waiters, bartenders, and gaming dealers.)

I’d love to reclassify my business as a “Self-Enrichment Teacher;” that happens to be one of the professions listed on the list published by Treasury. Clearly, tax professionals help individuals keep more of their money; that’s absolutely self-enrichment.  Unfortunately, changing the name of my business to “Clayton Self-Enrichment LLC” won’t change my profession.  My dream of changing my billings from “Tax Preparation” to “Self-Enrichment Fee” will just not work.

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IRS Closes Cincinnati Lockboxes; New Addresses In Effect Immediately

Posted on August 24, 2025 by Russ

Last week, the IRS released Publication 3891.  This publication lists out where to mail paper-filed returns and payments for the 2026 tax year.  Currently, Nevadans mail many IRS payments to addresses in Cincinnati, but not anymore.  Spidell reports that the new addresses should be used immediately.  

The major change for residents of Alaska, California, Colorado, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, Ohio, Oregon, North Dakota, South Dakota, Utah, Washington, and Wyoming is that there are new addresses to mail Forms 1040-V and 1040-ES. (Paper-filed forms 1040 with a payment go to the 1040-V address.)  The new address for residents in these states for Form 1040-V is:

Internal Revenue Service
PO Box 931000
Louisville, KY 40293-1000

The new address for residents of those states for Form 1040-ES is:

Internal Revenue Service
PO Box 931100
Louisville, KY 40293-1100

While the IRS states they will forward mail from the old Cincinnati addresses, I would, if at all possible, use the new address.  The IRS’s ability to deal with correspondence is dreadful, and while penalties will be waived if you can prove you mailed it to the Cincinnati address why deal with that at all! [1]

Even better, if you pay electronically (using IRS Direct Pay, EFTPS, your IRS online account, or having your tax professional have your bank account debited with the filing of your return) you avoid any issue at all.

Other addresses have changed, too, including where to mail extension payments and where to mail business payments.  Those are also noted in Publication 3891.

[1] Remember, to prove you mailed anything timely to the IRS it must go by certified mail.  Yes, it will cost you $5.30, but it’s well worth it.

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