Welcome bonuses from DraftKings, FanDuel, and BetMGM are not free money from a tax perspective. The IRS treats them as income. Bettors who claim a welcome offer without understanding that face an unexpected tax bill at filing time. Availability of these offers varies by state; check where over under betting is legal in your state before signing up.
Are sportsbook welcome bonuses taxable income?
Yes. Cash bonuses received from a sportsbook count as net earnings under the operator's own tax formula. DraftKings states it explicitly: Net Earnings = Cash Winnings – Cash Entry Fees + Cash Bonuses. That means a $200 cash bonus adds $200 to your net earnings figure before any bets are even placed. The bonus is not a rebate or a discount — it is income.
Bonus bets that convert to cash winnings are also taxable. All gambling winnings, including over under payouts, must be reported to the IRS regardless of whether a W-2G is issued. For a full picture of reporting thresholds, see how W-2G thresholds and federal rules apply to over under winnings in 2026.
How does the operator's net-earnings formula affect my tax bill?
Operators report net earnings to the IRS, not gross winnings. Adding cash bonus funds to that formula means a bettor who receives a $200 bonus, loses it entirely, and finishes the year with $0 in cash winnings could still show a positive net-earnings figure if bonus receipts exceed losses in the operator's calculation. That number flows to your federal return as ordinary income.
What records should totals bettors keep?
Retain every document that supports your reported figures. The IRS guidance is specific: wagering tickets, bank withdrawal slips, canceled checks, and all W-2G forms are acceptable supporting records. Digital transaction histories from your sportsbook account count too. Keep records for at least three years from the filing date.
- All W-2G forms received from operators
- Wagering tickets (digital screenshots are acceptable)
- Bank withdrawal and deposit slips
- Canceled checks related to gambling activity
Can I deduct losses to offset bonus income?
Gambling losses are deductible only as an itemized deduction and only up to the amount of winnings. Under the 2025 federal tax bill, the deduction is further capped at 90% of winnings starting in tax year 2026. If you took the standard deduction, gambling losses provide zero offset. See the full breakdown at gambling loss deduction rules for over under bettors in 2026.
Does bonus tax treatment differ by state?
State income tax rules vary. Some states with legal sports betting conform to federal treatment of gambling income; others have their own thresholds or withholding rules. A few states have no income tax at all. Legal status and state-level tax exposure are different questions — review both before claiming any offer. The broader legal context is covered at legal over under betting in the US: state laws and tax rules.
Who is most affected by bonus taxation?
| Bettor type | Risk level | Why |
|---|---|---|
| Recreational, claims multiple welcome offers | High | Each cash bonus adds to net earnings; losses may not fully offset if itemizing is not worthwhile |
| High-volume sharp bettor | Medium | Larger winnings mean W-2G triggers are routine; bonus income is a smaller share of total tax exposure |
| Casual bettor, no bonus claimed | Lower | Still owes tax on winnings; avoids the bonus-income surprise |
21+ only. Gambling problem? Call 1-800-GAMBLER. No wager guarantees a profit; bonus offers do not change long-run expected value. Consult a qualified tax professional for advice specific to your situation.