WOYALE.
If a bet pays out in crypto, you have taxable income the moment the coins are yours. The amount is their fair market value in US dollars at that time. If you later sell or swap those coins, you may owe tax a second time, on any gain since then. The two events are separate, and you report both.
This page is general information, not tax advice. Ask a CPA or enrolled agent about your own return.
Step one: the winnings are income
The IRS treats all gambling winnings as taxable. Cash counts, and so does anything else you win, valued at what it would sell for. Crypto falls under the same rule: the IRS digital-asset FAQs say income received in virtual currency equals its dollar value when received, and for an on-chain payment that means the time the transaction is recorded on the ledger.
Four details matter here:
- A tax form is not what makes winnings taxable. You owe tax on winnings that were never reported to anyone.
- Income from an unlicensed offshore book is still income. Nothing on this page means those books are legal; see Are offshore sportsbooks legal?.
- You report total winnings as income. Losses come in separately, and only as an itemized deduction. See Deducting gambling losses.
- Your state may tax the winnings as well. Check your state’s tax agency or ask your preparer.
How to value the coins: use the dollar amount an exchange or platform records for that moment, or a blockchain explorer’s value for a peer-to-peer transfer. Save a screenshot or export of the price source. See Records to keep.
Step two: selling or swapping later
Once you hold the coins, you have a cost basis equal to the dollar value you reported as income. The IRS FAQs say this directly for virtual currency received as income. When you sell, swap or spend the coins, the gain or loss is the proceeds minus that basis.
- Held one year or less: short-term, taxed at your ordinary rate.
- Held more than one year: long-term, taxed at the lower long-term rates. The holding period starts the day after you receive the coins.
- You report these on Form 8949 and Schedule D.
A stablecoin like USDC or USDT sits near $1, so the second step usually produces a gain or loss of a few cents. A volatile coin can produce a large one in either direction.
Worked example
You win a bet that pays 0.5 ETH on October 3. ETH is $3,000 at that moment.
| Event | Calculation | Result |
|---|---|---|
| Winnings received | 0.5 x $3,000 | $1,500 gambling income |
| Your basis | Same figure | $1,500 |
| Sell on December 1 at $3,600 | 0.5 x $3,600 = $1,800 proceeds | $300 short-term gain |
At a 24% marginal rate the winnings cost you $360 in federal tax. The $300 short-term gain costs another $72. Total: $432.
If ETH had fallen to $2,400 instead, the sale brings in $1,200. That is a $300 capital loss. You still owe tax on the full $1,500 of winnings. The loss can offset other capital gains, plus up to $3,000 of ordinary income per year, but it does not shrink the winnings.
Where it goes on your return
- Winnings: Form 1040, Schedule 1, in the part for additional income, on the gambling line. Check the line number on the current-year form.
- Sales and swaps: Form 8949, then Schedule D.
- Digital asset question: Form 1040 asks near the top whether you received digital assets as a reward, award or payment. If you got crypto winnings, the answer is yes.
- Losses: Schedule A, only if you itemize.
You may also owe quarterly estimated tax if you have large winnings without withholding. The IRS points to Publication 505 for that.
W-2G: when a payer sends you a form
Form W-2G is a payer’s report of certain winnings. For 2026 the IRS instructions give a $2,000 minimum threshold. A sports bet needs a W-2G only if it pays at least that much and the payout is 300 or more times your stake. The payer must also hold back 24% for federal tax once your profit on the bet (payout less stake) passes $5,000, again only at 300 times the stake or more. A payer can also apply 24% backup withholding if you don’t give a correct taxpayer ID.
Two things follow. A licensed US sportsbook may send a W-2G on a big paid-out win. An unlicensed offshore operator will not, and you still owe the tax. Also, a W-2G threshold is not a tax threshold: a $500 win has no W-2G and is still income.
Form 1099-DA: the broker form for selling
Form 1099-DA is the new form for digital asset sales. Brokers that hold customers’ crypto, such as custodial exchanges, report gross proceeds for sales made on or after January 1, 2025, and cost basis for certain sales on or after January 1, 2026. The IRS says the rules do not cover brokers that never take possession of the assets, such as non-custodial services.
In practice:
- A 1099-DA covers the sale, not the winnings. The IRS page does not say winnings are reported on it.
- Coins that arrived by transfer from a betting platform may show no basis, or a basis of zero, on your 1099-DA. Your own records of the dollar value at receipt are what fix that.
- If you never use a custodial exchange, no 1099-DA arrives. The tax is the same.
Spending crypto to place the bet
If you pay for a bet with a coin that has gone up since you got it, that may itself be a taxable disposal. The IRS treats paying for services with crypto as an exchange. It has not spoken directly to wagers, and tax professionals handle this differently. Ask a CPA how to treat it, and keep the purchase-date value of every coin you spend.
Common questions
Do I owe tax if I never cash out to a bank?
Yes, in the usual reading. Income is measured when you receive the winnings, not when you convert them to dollars. Holding the coins only delays the second, separate gain or loss.
Does the platform report my winnings to the IRS?
A US-licensed sportsbook may file a W-2G above the thresholds. An offshore crypto platform generally will not. Not receiving a form does not remove the obligation to report.
What if my winnings and losses cancel out?
Winnings still go on the return as income. You can deduct losses only if you itemize, and from tax year 2026 only 90% of them. That can leave tax due in a break-even year, which is the subject of Deducting gambling losses.