Taxes on Sports Betting Winnings in South Dakota

SD Has No State Income Tax

South Dakota is one of nine US states without a state income tax. Your gambling winnings are 100% free of state tax — no withholding, no reporting to a state revenue agency.

This is a meaningful advantage compared to neighboring states. Iowa, for example, taxes gambling winnings at the state level on top of federal.

Federal Tax: Ordinary Income Rate

The IRS treats all gambling winnings as ordinary income — taxed at your marginal federal rate (10% to 37% depending on your overall income). You report winnings on Schedule 1 of Form 1040.

Important: you owe federal tax on ALL gambling winnings, regardless of whether the sportsbook reports them. Many small wins go unreported by the bookmaker but are still legally taxable.

The W-2G Threshold

Sportsbooks are required to file a W-2G with the IRS (and give you a copy) when:

• Winnings are $600 or more AND at least 300x the wager amount, OR
• Winnings are subject to federal income tax withholding
• Most large parlay wins, futures wins, and big single-bet wins trigger a W-2G

Federal Withholding (24%)

Sportsbooks withhold 24% federal tax on winnings of $5,000 or more (where winnings are at least 300x the wager). The 24% is sent directly to the IRS; you get the rest as cash plus a W-2G.

If your actual federal tax rate is lower than 24%, you'll get the difference back when you file your tax return. If your rate is higher (37% top bracket), you'll owe more at filing time.

Deducting Losses

You can deduct gambling losses on your federal return, but ONLY if you itemize (Schedule A). You can only deduct up to the amount of winnings — you cannot use gambling losses to offset other income.

Keep records: tickets, casino-issued win/loss statements, dated logs. The IRS expects documentation.

DFS Winnings

DraftKings Fantasy and FanDuel Fantasy winnings are taxed the same as sportsbook winnings — ordinary federal income, no SD state tax. They issue 1099-MISC (not W-2G) for annual winnings over $600.