9 reasons gambling taxes are not fair

Last update: February 20, 2026

Gambling taxes in the U.S. are unfair for a whole host of reasons.

1. Gambling wins aren’t really income.

The total of all Americans’ gambling activity each year is a loss for the players. That means there is no actual income to tax. That’s starkly different from the sum of all Americans’ wages, which is clearly income. Lots of countries don’t tax gambling wins because they recognize that it’s not really income. (Canada, UK, Australia, New Zealand, Austria, Finland, Signapore)

2. Net wins are taxable, but you can’t deduct net losses.

If you win $1500 and lose $500, you pay tax on $1000 of winnings. But if you win $500 and lose $1500, you don't get to claim a $1000 loss. The easiest solution to this problem is to simply not tax gambling winnings at all, because the sum of all Americans’ gambling activity is a loss, there's no real income to tax anyway.

3. Most taxpayers have to pay taxes on more than they actually won.

Wins and losses have to be reported separately, you can’t net losses against wins and report the difference. Your wins are reported as income so they’re taxable. But your losses aren’t deductible unless you itemize, and most Americans don’t itemize, not just because of the hassle, but because their taxes are usually higher if they itemize. So let's say you had $2000 in wins and $1500 in losses for the year. You’d think it would be fair to pay taxes on $500 in wins. But sorry, you’ll pay taxes on the whole $2000 in wins, because you can’t deduct the $1500 unless you itemize, and you probably won’t. Sucks to be you.

Those who would claim that you are deducting your losses as part of your standard deduction are missing this point: If you didn't gamble at all, you'd still get to take that same standard deduction. Someone who gambles and someone who doesn’t gamble gets the same standard deduction of ~$26,000 for a household. But the gambler has extra deductions vs. the non-gambler that the gambler typically can’t claim. The bottom line is, the gambler pays excess taxes.

4. Most taxpayers have to pay taxes on their wins even when they have a net loss for the year.

This one is probably the most egregious in the whole list. You had $1000 in wins and $3000 in losses. So you lost $2000 for the year, and would expect to pay no taxes. Sorry, not in this country. It’s the same problem as the previous example: Losses are deductible only if you itemize, and you probably won’t. If you don’t itemize, you’ll pay taxes on your “winnings” even though you were a loser for the whole year.

5. Can’t deduct all your losses even if you itemize

Starting in the 2026 tax year (for returns filed in 2027), gamblers can deduct only 90% of their losses, even if they itemize. So for example, $10,000 in wins, $10,000 in losses, you’ll be able to deduct only $9000 in losses, so you’ll have to pay taxes on $1000 of phantom income. Oh joy. This was part of the Big Beautiful Bill. (Public Law 119-21, Sec. 70114) (see examples)

6. Can’t carry losses over to the next year

Gambling losses can’t be carried over from year to year. Let's say your yearly net losses for playing slots are $2000, $2000, and $2000, and then in Year 4 you have a net win of $500. So over four years you had a net loss of $5500. However, in year 4 you'll pay taxes on the $500 win, and never get any credit for your $3000 in losses for the previous three years.

Reporting wins separately from losses increases your AGI, leading to a whole host of problems.

A $5000 yearly win and a $5000 yearly loss means you only broke evven, but because you report wins separately from losses, the $5000 is added to your income, so your AGI (Adjusted Gross Income) goes up by $5000. Even if you itemize the $5000 loss, your AGI goes up before that loss is considered. A higher AGI might be great if you're trying to get a loan and the bank uses your AGI as your income, but an inflated AGI can come with whole a raft of headaches:

7. AGI limits what you can deduct on Schedule A

Your ability to make certain deductions is limited when your AGI is high.

Medical and Dental Expenses. You can deduct only the amount that exceed 7.5% of your AGI. (Schedule A instructions)
Charitable Contributions. Only the amount that exceeds 0.5% of your AGI is deductible on Schedule A, starting in 2026. (source) For 2025, donations are limited to 60% of AGI. (Pub. 526)
Losses from federally-declared disasters. Only the amount over 10% of AGI is deductible. (Pub. 547)

8. Higher Medicare premiums

Medicare Part B and Part D premiums are tied to your AGI. So unfair tax laws mean that your Medicare premiums could go up from your gambling activity, even when you have a net loss for the year. USA! USA! (Schwab)

9. Higher state income tax

Some states base their income tax as a percentage of AGI. And again, AGI is figured before losses are considered, even if you itemize. So if you’re in one of those states, then even one winning session throughout the year will increase your state income tax, even if you lost money gambling over the whole year.

The solution: Stop canceling recreational gambling

All these problems are side effects of taxing gambling in the first place. Trying to just make specific changes is just a Band-Aid™, could make tax reporting even more complicated, and probably won’t solve every problem. Since Americans lose money overall from gambling there is no real income to tax anyway, so getting rid of gambling taxes shouldn’t be remotely controversial.

The next-best option is to let gamblers simply net losses against wins. You have $2000 in winning sessions and $1500 in losing sessions? That’s a $500 win, not stupidly reported separately as a $2000 win and a $1500 loss (which you can’t even claim unless you itemize). You have $1500 in winning sessions and $4000 in losing sessions? That’s a $2500 loss, so there’s no income to report, so the winning sessions aren’t stupidly reported as a $1500 win.

These things will never happen, but what do we have if we don’t have dreams?

Details on the 90% limit on losses

Since I’ve been asked to clarify how the 90% limit on losses works, the phantom income penalty kicks in only if wins are ≥90% of losses. For smaller wins, there’s no tax on phantom income. Examples:

$30k wins, $50k losses: