Editor
Professional gambling may become even more difficult as a career in the US than it already was now that Republicans have passed the controversial omnibus budget bill known as the “One Big Beautiful Bill Act.” Federal Republicans in the House of Representatives put up some token resistance, but all save two ultimately voted for it.
The bill makes substantial cuts to healthcare, food benefits, and clean energy incentives. Many Americans will receive tax cuts in return for those savings, but not professional gamblers. Instead of paying taxes on net winnings, they’ll pay based on gross winnings minus 90% of gross losses.
That will be damaging no matter how you slice it. The extent of the damage depends on the accounting. In the extreme scenario, the IRS could demand that every spin of a slot machine and every hand of poker be treated as a separate transaction. By that reckoning, many forms of gambling would become massive tax traps, with players likely to lose more money to the government than to the house.
The logistics of tracking wagers that granularly might save some bettors. Let’s examine some of the bill’s implications and identify who will be most affected.
High Volume Means High Taxes
The biggest problem with the new tax policy is that the tax owed will depend on the number of sessions or bets required to achieve the same result.
Someone who wins a single $1,000 even-money bet will owe tax on $1,000. However, someone who placed nine such bets and won five of them will owe tax on $1,400. Both players had $1,000 net profit, but the latter had $5,000 in gross winnings and can only deduct 90% of their $4,000 in gross losses.
In other words, the professionals who exploit small edges will be most impacted. Many sports bettors and online sit-and-go players could become net losers after taxes, as single-digit ROIs are common in those spaces.
Recreational players who prefer to place many small bets than a few big ones might also be hurt, depending on how much scrutiny they get.
Losers: Sit-and-go players, sports bettors, low-stakes/high-frequency recreational gamblers.
Definition of a Session Matters
In principle, casual slots players could get decimated if every bet is treated as a separate transaction. The amount of tax owed on money going back and forth could equal the house edge on some games.
However, the volume of data required to do that accounting might mean the IRS looks at things from the perspective of sessions. The bill’s impact on casual retail gamblers will be minimal if losses are only calculated when players leave the casino.
The problem then becomes whether online gamblers are treated differently. In their case, the operator already retains a detailed history of every bet, tied to the ID used to open each account. If the IRS demands that data, then taxes on online gambling could become much more punitive than in a retail environment.
Online poker cash game players could have the worst of it if every hand is logged and treated as a separate bet.
Losers: Online cash game players (depending on accounting), casual players who prefer a large number of short sessions.
Volatility is a Double-Whammy for Pros
One final thing to note is that even for a fixed profit over a fixed number of sessions or bets, the tax implications are better when winning small amounts repeatedly, rather than a large amount all at once.
For instance, consider two bettors who each place 100 bets for $100 apiece:
- One bets at even money and wins 60 out of 100. ($6,000 – $4,000 = $2,000).
- The other bets at 4-1 and wins 24 out of 100. (4 x $2,400 – $7,600 = $2,000).
Each placed $10,000 in wagers and has a net profit of $2,000. However, the first bettor has $6,000 in gross winnings and $4,000 in gross losses, and will pay taxes on $2,000. The second has $9,600 in gross winnings and $7,600 in gross losses, and will pay taxes on $2,760.
High volatility is already bad for professional gamblers because it forces more conservative bankroll decisions (c.f. the Kelly Criterion). These tax implications will exacerbate that.
Losers: Large-field tournament players, longshot parlay bettors, high-volatility slots players.
If Everyone Loses, Who Wins?
An astute reader may have noticed that almost every form of poker is included in one of the “losers” sections above. The exception might be retail cash game players who play long sessions—saved by the fact that no one is tracking individual hands at brick-and-mortar poker rooms. In principle, someone who never gets up from the table could pay taxes only on net winnings, as before.
Presumably, the intent of the bill is that the government wins. Despite the cuts to social programs, it increases defense spending and doesn’t include many new sources of revenue. Gambling is unpopular with social conservatives, so squeezing gamblers for a few extra dollars might seem sensible to them.
The real impact on federal finances could be relatively small, depending on the extent to which the policy has a chilling effect on the industry. It could even be negative if a lot of online players move their money offshore in response. In principle, offshore gambling is also taxed (despite being illegal), but it’s harder for the authorities to track.
If anyone is rubbing their hands gleefully about this, it’s the operators providing “gambling alternatives” through legal loopholes. That includes the likes of sweepstakes sites and, especially, prediction markets like Kalshi. Because they’re technically “not gambling,” they’re exempt from this policy. In Kalshi’s case, net earnings from contracts are treated as “other income” on tax forms.
The Trump administration has already done one huge favor for Kalshi and its ilk by appointing new leadership at the Securities and Exchange Commission that has dropped its objections to novel contracts like sports predictions and election speculation. Already, those sites provide a more widely available alternative to conventional sportsbooks. If they also offer tax advantages to winning bettors, they might gobble up even more market share.
