How the One Big Beautiful Bill Act taxes gamblers on money they didn’t keep

Imagine hitting a $1,500 jackpot on a Vegas slot machine, losing it all before leaving the casino, and yet still owing hundreds in taxes at the end of the year. That could be the reality for gamblers in America thanks to a new federal tax rule quietly slipped into the so-called One Big Beautiful Bill Act.  

Until now, the tax system imposed on gambling mostly made sense: If you won money, you paid taxes on your net winnings—the money you made after subtracting the amount spent on losing bets. But, under the new rule, gamblers will no longer be able to deduct the full value of their losses, capping such deductions at 90% of reported winnings. This creates a tax on phantom income—forcing gamblers to pay federal income taxes on up to 10% of their winnings even if they end up losing all of it and more by year’s end.   

The change is projected to raise between $125 million and $165 million in additional tax revenue annually, or around $1.2 billion over the next decade, according to a report by the Joint Committee on Taxation. But this projection ignores gamblers’ long history of sidestepping punitive gambling laws on land, sea, and via the internet. If gamblers were to hide even just 10% more of their winnings—a likely outcome—it would completely negate the additional revenue generated by the new rule. Combined with the adverse effect the new tax would have on corporate and payroll taxes from industry contraction, the cap could result in a net tax revenue loss.  

Underreporting of gambling winnings is already a known and longstanding problem. From 2018 through 2020, just under 150,000 Americans failed to file tax returns on approximately $13.2 billion in gambling winnings, according to a report from the Inspector General for Tax Administration. The new rule will likely only make such underreporting more widespread. 

Some gamblers aware of the change might begin to avoid the types of large-prize games that trigger IRS paperwork, like winning $1,200 or more at a slot machine or $5,000 at a poker tournament. Vacation gamblers may similarly shift from Las Vegas to Macau, or to European and Caribbean casino destinations, where their winnings are not automatically reported to the U.S. government. Many gamblers will also likely turn to offshore gaming websites, which also do not report gambling winnings to the IRS, some of which now accept bets in even harder-to-track cryptocurrencies.   

But the damage extends far beyond an uptick in underreported gambling winnings. Mid- and high-stakes poker tournaments could face collapse as players weigh hefty buy-in fees and other costs against diminished returns. Fewer entrants mean smaller prize pools and likely fewer events for professionals. Poker coach Phil Galfond warned the rule would essentially end professional gambling in the U.S. Alex Cane, CEO of the betting exchange Sporttrade, echoed the sentiment, declaring that no gambler “serious about betting is going to bet anymore, or at least not going to report that they do.” Casino owner Derek Stevens similarly worried about the impact on Vegas casino-resorts, arguing that the new rule would force many bettors to move offshore.  

The stakes are also existential for states invested in the gaming industry, like Nevada, where gambling taxes fund around 35% of the state’s budget and where the industry supports around 27% of the state’s workforce. Nationwide, the $330 billion gaming industry directly employs around 700,000 people and supports a total of 1.8 million jobs, according to industry data. All of that could be threatened as gamblers inevitably seek out alternatives to avoid the new tax.  

These concerns prompted Nevada Rep. Dina Titus (D-Clark County) to introduce the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act days after the passage of the new rule. Her bill would restore the 100% deduction for gambling losses, eliminating the phantom tax. The legislation represents more than fairness for gamblers—it is protection for the nearly 2 million American jobs and state budgets relying on a healthy U.S. gaming industry. 

The phantom tax provision in the new rule appears solely aimed at raising federal revenue from a politically vulnerable group. Though most Americans gamble occasionally, few will defend the activity against tax hikes. But this short-sighted policy risks repeating past mistakes.  

When taxes make legal gambling punitive, players simply move underground. Unregulated bookies thrived when sports betting was banned in the U.S. Offshore websites boomed after the crackdown on online poker. The new rule guarantees that history will repeat itself—shrinking the legal industry, fueling illicit activity, and ultimately costing jobs and revenue.  

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