[ad_1]
Two major upsets in 2014 busted brackets, resulting in no $1 billion winner. As a consolation, the owners of the 20 most accurate brackets received $100,000.
Millions of fans will be making wagers on the men’s and women’s tournaments, including an estimated $2.7 billion in legal sports betting markets alone, according to the American Gaming Association.
By the way, your odds of having a perfect bracket are 1 in 9,223,372,036,854,775,808 if you guess or flip a coin, according to NCAA.com.
But if your wagers pay off during March Madness, Uncle Sam wants in on the game. Here are four reasons you need to report your winnings to the IRS.
The IRS receives income information on you
The IRS uses an automated system to compare such information against what people report on their tax returns. Third-party disclosures, such as a W-2 form from your employer or a 1099-K from a payment platform, are sent by employers or companies such as PayPal, Venmo or Cash App.
If there’s a discrepancy between your reported earnings and a 1099 received by the agency, you will probably get a CP2000 notice of unreported income.
This month, the IRS reminded taxpayers that all income should be reported on their tax returns unless there is a specific exclusion.
If you were paid with a digital asset, for example, the IRS says you must report the value as wages. The same is true if you worked as an independent contractor and were paid with cryptocurrency. It’s income.
Got a gig picking up people’s food or groceries and got paid by foreign sources? Income.
And yes, this includes March Madness winnings, according to Eric Bronnenkant, head of tax at Betterment, a digital investment advisory firm.
Gambling winnings represent one type of taxable income, which is taxed at ordinary income tax rates plus applicable state income tax.
The IRS generally requires the reporting of gambling winnings on IRS Form W-2G if net earnings exceed $600 and are at least 300 times the wager, Bronnenkant said. This is true whether a W-2G is issued or not.
Let’s say you collect $1,000 on a $1 wager on March Madness. The winnings should be reported on a W-2G and on your tax return. At IRS.gov, you can find a tool — “How do I claim my gambling winnings and/or losses?” — to help determine how to claim your gambling winnings and/or losses.
“Taxpayers who have gambling losses can potentially deduct their losses as an itemized deduction up to their gambling winnings,” Bronnenkant said. “However, it is common for people to take the standard deduction, which does not allow for the deduction of gambling losses.”
Underreporting your income will cost you big time
You might convince yourself the IRS won’t catch you if you don’t report your winnings. But be warned that the money you saved skirting the law could easily be dwarfed by hefty penalties and interest.
The IRS is required by law to charge interest on any past-due tax. The interest rate, set by law, is tied to interest rates on short-term Treasury securities. On April 1, the rate will remain 8 percent for individuals — nearly triple the 3 percent levied during the same quarter of 2021.
It’s important to pay what you owe on time — or as much as you can — because interest is compounded daily.
“When it comes to the IRS, my experience has taught me that even the smallest office bets don’t fly under their radar for long,” Bronnenkant said.
You’re cheating your older self
Social Security uses your earnings and work history to determine your eligibility for retirement or disability benefits or your family’s eligibility for survivor benefits.
To qualify for benefits, you must earn at least 40 Social Security credits. You earn credits when you work and pay Social Security taxes.
For 2024, you can accrue one Social Security or Medicare credit for every $1,730 of earnings, up to a maximum of four credits per year. If you are self-employed, you earn credits the same way as an employee. This means you have to earn $6,920 to get the maximum four credits for the year.
Extra credits don’t increase your Social Security benefit. But your earnings make a difference.
“The average of your earnings over your working years, not the total number of credits you earn, determines how much your monthly payment will be when you receive benefits,” according to the Social Security Administration.
In a Gallup poll last year, only 34 percent of non-retirees said Social Security would be a significant source of income. That may be woefully unrealistic.
Gallup found that 59 percent of retirees said they rely on Social Security as a “major source” of income.
Sure, you might get away with hiding earnings from the IRS. However, you could be seriously cheating yourself later.
[ad_2]
