Michigan, the 20th US state to legalize sports betting after the overturning of the Professional & Amateur Sports Protection Act in 2018, has emerged as a gambling juggernaut. However, due to sports betting taxes in Michigan, punters don’t get to keep all of their winnings. Here's a comprehensive guide to understanding and navigating these taxes.

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Michigan sports bettors must pay taxes on winnings from bets placed at both land-based and online Michigan sportsbooks or casinos. All winnings are taxable income, with taxes determined by the amount won. However, only winnings are taxed, not your stake.

For instance, if you place a $10 bet and win $30, just the $20 winnings are taxable. Great Lakes Stakes boasts a free ‘gaming tax calculator’, which you can use to estimate how much you’ll be taxed.

Despite being a relatively late entrant to the legalization of internet sports betting, Michigan has become a gambling powerhouse, generating a huge amount of funds via taxation. Initially projected to yield $19 million in annual tax revenue, as of August 2023, the state has amassed just under $1bn in lifetime tax revenue.

Approximately $30m has been generated every month in state taxes.

Should I Pay Taxes on Land-Based Betting?

Land-based casino and online sports betting winnings are subject to Michigan’s flat income tax rate of 4.25%. This is applied to your net winnings only, meaning your total amount won minus any noted losses incurred during the tax year in question. You’re responsible for maintaining a precise record of your wins and losses at land-based casinos for your tax reports.

It’s the casino’s responsibility to issue a W-2G tax form to those who win $600 or more, and at least 300 times the wager amount — which indicates the winnings and any federal taxes withheld.

Moreover, there are also federal income tax rates (dependent on an individual’s total income and tax bracket) to consider. These differ from Michigan’s state tax, which are imposed on winnings. Casinos are required to withhold 24% of your winnings for federal tax, but only if you win more than $5,000 and the winnings are at least 300 times the wager.

Online Casino Betting: Taxable Income

Similarly, any online winnings are subject to Michigan’s 4.25% state tax, and this includes winnings from welcome offers, which are common among online bookmakers.

All online bookies must issue a W-2G form to those who win $600 or more and at least 300 times the wager amount. However, you’re responsible for your own bookkeeping of your total winnings.

The Michigan State Lottery is laden with games and promotions, and any winnings from the lottery are also subject to federal, state, and local taxation.

Here are some key points:

  • The Michigan Lottery does not withhold taxes on prizes $600 or lower.

  • Lottery winnings/prizes in excess of $600 are categorized as income, so a W-2G form is required for your tax filings.

  • Michigan does not withhold taxes on winnings from $601 to $5,000, but you must report these funds to the Internal Revenue Service and the Michigan Department of Treasury.

  • Winnings that exceed $5,000 must retain 24% for federal income tax. Prizes of this size are also subject to automatic withholdings at both state and federal tax levels. 4.25% is withheld for Michigan state tax

Taxes will remain a source of contention wherever you are, but they can prove beneficial if the money generated is used in the right way.

Michigan’s low tax rate means the state doesn’t collect as much in gambling taxes compared to other states, but the money earned can nonetheless go towards the improvement of local communities. The revenue can be directed and used for multiple ventures, with the taxes collected by online and land-based bookmakers/casinos going towards the state’s general fund.

These funds can then facilitate the improvement of public services and infrastructure, potentially aiding the development of initiatives regarding education and healthcare in Michigan, too. For example, Michigan casinos contribute 8.1% of their Adjusted Gross Receipts directly to the School Aid Fund.

In Detroit, the state’s biggest city, 30% of taxes from operators linked to their casinos go towards public services, 65% to the internet gaming fund, while the remaining 5% is designated to the Michigan agriculture equine industry development fund.

michigan tax form screenshot
(Source: IRS)

Casinos hand punters a W-2G form, where they need to detail their winnings. The IRS also receive a copy.

Here are the thresholds for receiving a W-2G form:

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    Winning $1,200 or more from slot machines or bingo

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    Winning $1,500 or more from a keno game

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    Winning more than $5,000 from a poker tournament (less the buy-in amount)

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    Winning $600 or more from an event like horse racing if the payout was at least 300x the wager amount

Casinos are not liable to hand out forms for minor wins, so it’s your responsibility to keep up to date with all your gambling winnings to ensure you can accurately declare them as part of your federal tax return.

Michigan’s taxation structure can be divided into three levels: individual, brand, and state. Here’s a breakdown of all three:

Individual State Taxes

Individuals are obliged to pay a 4.25% state tax on all their sports gambling winnings. A federal tax on winnings is also imposed, with the casino/bookmaker withholding 24% for federal income taxes. This tax rate is dependent on an individual’s income and tax bracket.

Rules for Brands

Casinos and sportsbooks are also responsible for paying taxes and licensing fees to operate in Michigan. The size of their tax depends on the casino’s revenue streams. For example, major establishments such as the MGM Grand Detroit, MotorCity Casino, and Greektown Casino, are required to pay 10.9% of their adjusted gross revenue in city tax, as well as 8% in state tax. In 2022, these three casinos generated over $250 million in tax revenue.

Obtaining an internet gaming operator licence costs $100,000, with the application itself costing $50,000. The annual fee to continue operating in Michigan is $50,000. Internet gaming suppliers are subject to an initial licence fee of $5,000, which is renewable for $2,500 each year thereafter.

State Tax Information

As well as Michigan’s flat 4.25% tax rate, there are also city taxes to consider. 24 cities in the state have a local tax, and residents must pay a local income tax. Detroit’s local tax is 2.4%, Highland Park’s is 2%, and Grand Rapids and Saginaw is 1.5%. Others, including Albion, Jackson, Flint, and Hudson, all have a rate of 1%.

Michigan is able to generate masses in gambling tax via individual winnings and licensing fees.

Paying tax on your gambling winnings can be seen as a distinct inconvenience. However, Michigan’s 4.25% flat tax rate is fairly kind compared to other states, and taxpayers can take some solace in knowing that a chunk of their income is going towards improving local areas and surrounding communities.

Yes, but only your winnings. Stakes are not taxed.

Any winnings earned from gambling promotions are taxable.

The Michigan 4.25% state tax is low compared to other US states. Cities in this state also impose local income taxes, which vary from 1% to 2.4%.

You can, but only if you itemize your deductions on your taxes. You’re only allowed to deduct losses equal to your winnings. You can always check official for more information about standard deduction and itemized deductions.

You will likely be penalized financially if you're caught not reporting your winnings to the IRS. Penalties vary depending on the amount of unreported state and federal taxes.

There are multiple tax forms, but the most common for sports bettors — and the one you use when declaring your winnings — is the W-2G form distributed by casinos. The 1099-MISC form is also common.

Yes, if you win money while on a visit to the state, you’re then required to declare your winnings on your home state’s tax return. This will often be at Michigan’s 4.25% rate.

WRITTEN BY James Cormack View all posts by James Cormack

Big sports fan specialising in football. Experienced the lows of Vlad Chiriches and Tim Sherwood as a Spurs fan along with the more recent ‘success’ under Pochettino. My following of the New England Patriots since 2012 somewhat makes up for the lack of silverware produced by Spurs in my lifetime.

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