US Tax Reform 2026: Why Recreational Bettors Owe Taxes Despite Losses

The gambling landscape in the United States has shifted dramatically following the implementation of new tax regulations for the 2026 tax year. What used to be a straightforward calculation of netting wins against losses has evolved into a complex trap involving phantom income and real-world tax liabilities. Recreational gamblers who finish the year exactly where they started at the sportsbook or blackjack table are finding themselves with unexpected bills from the Internal Revenue Service (IRS). The government is now demanding a share of money that never actually stayed in the players' pockets, creating a paradoxical situation for millions of citizens.

At the heart of the issue is the new ceiling on deductible wagering losses. Under previous rules, taxpayers could deduct 100 percent of their losses up to the amount of their winnings, effectively neutralizing the tax impact of a wash. However, since January 2026, the IRS only permits the deduction of 90 percent of those losses. For a bettor who wins $100,000 and loses $100,000 across the year, this leaves $10,000 in taxable income on paper. This phantom figure is consistently 10 percent of the losses claimed, meaning the more a player wagers, the more they potentially owe, regardless of their actual profit or loss.

Numbers and facts

This legislative shift is not just a minor adjustment; it is a significant revenue generator. According to the Joint Committee on Taxation, the provision is projected to raise approximately $1.1 billion in federal revenue over the next ten years. However, industry representatives warn of a cooling effect on the market. During an IRS hearing on July 17, 2026, tax professional Gary Kondler noted that the gambling industry is facing a decline in numbers due to the fear surrounding the 90 percent rule. The stakes are high for state and local governments as well, given that the domestic gaming industry supports 1.8 million jobs and contributes $53 billion in tax revenue annually.

Retirees are particularly vulnerable to these changes. Since gambling winnings increase Adjusted Gross Income (AGI), the ripple effect can be devastating. A higher AGI can pull more Social Security benefits into taxable territory and trigger higher Medicare Part B and Part D premiums through IRMAA surcharges. A break-even year at a casino can thus lead to a cascading financial burden that affects health insurance and retirement benefits years down the line.

Background

The legislative battle to repeal this provision has been intense but so far unsuccessful. The FULL HOUSE Act was introduced in January 2026 with the goal of restoring full deductibility, supported by members of the Ways and Means Committee. In March 2026, Senators Cruz and Miller filed a companion bill in the Senate. Representative Dina Titus of Nevada has been the most prominent advocate for the industry, though her amendment fell short on January 23, 2026. House Republicans subsequently blocked another attempt in February 2026. As it stands, the rule remains the law of the land for the current tax year.

"The gambling industry is facing a decline in numbers because of the fear that has set in for many gamblers due to the 90% rule." - Gary Kondler, Tax Professional

Why it matters for German players

For players in Germany, this US development serves as a cautionary tale regarding how governments can leverage gambling for fiscal needs. Currently, recreational gambling winnings in Germany remain tax-free under the Income Tax Act. The fiscal burden is placed on the operators through taxes such as the 5.3 percent stake tax introduced by the GlüStV 2021 for online slots and poker. While German players do not face direct income tax on their winnings, they feel the impact through lower Return to Player (RTP) percentages as casinos adjust to these costs.

The US situation highlights the importance of playing within a strictly regulated framework. In Germany, the GGL (Joint Gambling Authority of the States) ensures that licensed operators follow clear rules regarding deposit limits of 1,000 Euro per month and a 1 Euro per spin limit. These protections, combined with the central LUGAS and OASIS systems, provide a level of legal certainty that US players currently lack under their new, punitive tax code. Ensuring participation only in GGL-licensed casinos is the best way for German players to avoid legal and financial complications.

What it means for GGL-licensed casinos

For casinos licensed by the GGL, the US tax changes underscore the fragility of the gambling market when faced with aggressive taxation. While German regulation focuses heavily on player protection and addiction prevention, the US model shows how direct taxation of players can discourage participation in the legal market. If the regulatory or tax burden becomes too high, players often migrate to the unregulated black market. GGL-licensed providers must continue to emphasize the benefits of the legal market, such as guaranteed payouts and legal safety, to remain competitive against international offshore sites that do not adhere to German law.