(sports betting is worse than you thought, even if you are winning)

What was illegal in most of the country before a 2018 is now a phone-tap habit for tens of millions of people. Sports betting in America is no longer a niche vice. In 2025, more than 1 in 5 adults placed a sports bet. Among those aged 18 to 29 that rises to nearly a third. Our tax laws were built for an era of occasional racetrack tickets, and it is now catching ordinary people in automated online traps they never knew existed. I would even say that this is the most far-reaching financial trap of our lives.

I hear from an increasing number of people facing serious financial risks as the direct result of sports betting. I’m not talking about those who lose money; that risk is obvious. I am taking about the winners. One client had trouble convincing tax auditors of his gambling losses that offset income. Another faced tough scrutiny and an unusually high child support payment order in a family court hearing. Others are charged higher Medicare premiums. One new client I worked with today might lose his Medicaid coverage.

Financial cruelty is built into this system because the law hurts those who are least able to afford the extra cost. The government automatically receives a report on all your gambling winnings, but not your losses. It is not uncommon, for example, to see a person with a modest $50,000 salary churn through almost $500,000 dollars of phantom winnings and losses on sports betting apps without touching a dollar of cash. All the government sees is a high income person with $550,000 taxable.

Most people assume that if they break even on the year, they owe nothing. Last year that was mostly true. But it is not true this year. Under the law deceptively called the One Big Beautiful Bill Act, gamblers may deduct only 90 percent of their losses against winnings beginning in 2026, which means a bettor who wins $10,000 and loses $10,000 still owes tax on $1,000 of income that does not exist in their pocket. Practitioners have a name for it: phantom income. Win fifty thousand and lose fifty thousand, and the government taxes you on five thousand dollars you never kept. The more you gamble, the more the tax on phantom income.

That is the common headline issue, but it is not the part that does the deepest damage to the people I see more often now in my practice. The deeper problem is quieter, and it has to do with where on the tax return the winnings and the losses each land on the tax teturn.

Gambling winnings are added to income at the top of the tax return. Gambling losses, for someone who can claim them at all, come out near the bottom, as an itemized deduction. The two never meet in the middle where the most important number on the return is calculated. That number, adjusted gross income, is the figure that drives eligibility for a long list of things that have nothing to do with income tax. A person can owe zero additional income tax after deducting every dollar of losses and still have an adjusted gross income inflated by hundreds of thousands of dollars of winnings that were churned back into the same app, even on the same night.

Here is what that inflated income number does to people who can least absorb it:

For anyone on Medicare, it triggers “IRMAA”, the income-related surcharge on Part B and Part D premiums. IRMAA works on a two-year lookback, so a big betting year in 2024 raises the Medicare premium in 2026, long after the money is gone and often after the bettor has forgotten the year ever happened. It is a cliff, not a ramp: one dollar over a threshold applies the entire surcharge for that bracket. The loss deduction does nothing to stop it, because the deduction lives below the line that IRMAA reads. For a married couple both on Medicare, the surcharge lands twice. I see clients every year caught in exactly this trap, people who netted nothing and pay thousands in extra Medicare premiums anyway.

For low-income and disabled people, the danger is worse. Health coverage through Medicaid, and the cash support of Supplemental Security Income, are tested on income in the month received and on assets held month to month. A jackpot counts as income the month it hits. Whatever is left afterward becomes a countable asset, and the limit is often around two thousand dollars. A disabled person who has a good run on a betting app can lose SSI and the Medicaid that rides along with it, and can face a benefit overpayment demand from Social Security on top of the tax bill. The tax arguments that rescue income tax and even IRMAA do not necessarily move a Medicaid caseworker, who runs on program rules and frequently looks at the gross figures on the information returns, not at a carefully reconstructed session schedule. A person can win the tax fight and still lose the coverage.

This is the most serious problem. The people most likely to chase a life-changing sum on a phone app are not among the financially comfortable set. They are the people for whom a few thousand dollars genuinely changes their monthly finances. They are often the same people for whom an inflated adjusted gross income quietly detonates the supports that keep them housed and insured. The 90 percent loss cap will be the focus of angry headlines. The income-versus-asset mechanics will do the real harm, to the people with the least cushion, two years after the fact, when no one is looking.

A few practical truths for anyone reading this who bets, or who loves someone who does. Every threshold win generates a Form W-2G that the IRS already has, so the winnings cannot be ignored even when the year was a wash. Losses are deductible only with records, and the betting apps keep far better records than most people realize, so the transaction history should be pulled and kept. The session method, recognized by the Tax Court, can reduce the reported winnings figure itself rather than merely offsetting it, and that distinction is the difference between help that touches only income tax and help that reaches the surcharges and benefit tests too. Anyone on Medicare, Medicaid, SSI, or a marketplace health plan should treat a big betting year as a planning emergency, not a footnote, and should get advice before the year closes rather than after the surcharge or the termination notice arrives.

The gambling industry will tell you this is entertainment, and for most people most of the time that is fair. But entertainment does not usually come with a two-year-delayed premium surcharge or the loss of a disabled neighbor’s health coverage. As the apps reach deeper into ordinary folks’ lives, the tax system attached to them deserves a harder look than it is getting, and the people most exposed deserve to be warned before the bill comes due and before a risk of loss of health coverage.

There are ways to mitigate the risks that should be considered on a case by case basis. Past tax court rulings offer possible relief. If you have gambling winnings, call for a discussion of the options.