A £21.5 million tax assessment was wiped out in a UK tribunal, and that single result is why HMRC is now rewriting how free bets and free spins are taxed. If you bet in the US and you saw that headline, here is the short version of what it means for you: nothing, directly. Are free bets taxable on this side of the Atlantic? The money you win using a bonus bet is generally taxable gambling income, reported as other income, even though the credit itself never hit your bank account. There is no US free bet loophole for the IRS to close, because the rule was never written in a way that created one.
That difference is worth understanding properly, because the part US bettors get wrong is not whether bonus winnings count. It is what you can do about the losses on the other side of the ledger.
The £21.5m appeal behind HMRC’s free bet loophole fix
The UK issue is an operator duty problem, not a personal income tax problem. HMRC has proposed changes to how Remote Gaming Duty applies to free bets, free spins and other promotional offers, following Jumpman Limited’s successful appeal against a £21.5m tax assessment covering Remote Gaming Duty for 2018-2022. Under the proposals, delivered via amended Remote Gaming Duty rules, “freeplays” would be renamed “restricted players”, with new definitions covering prizes and tournaments so promotional products are taxed more clearly.
The measures are scheduled to take effect on 1 April 2027 if they pass through Finance Bill 2026-27. The dispute is about how much duty a gambling operator owes on the promotional stakes it hands out, and how those freeplays are counted when calculating gaming profits.
UK bettors themselves do not pay income tax on gambling winnings at all, so none of this changes what an individual there owes. That is the whole contrast: the UK taxes the operator and argues about definitions of promotional play; the US taxes the player and does not care where the stake came from.
The US baseline for reporting gambling winnings
The IRS treats gambling winnings as fully taxable income, whatever game produced them and whatever funded the wager. Winnings go on Schedule 1 of Form 1040 as other income, and non-cash prizes are included at fair market value. IRS Publication 525 covers how gambling winnings fit into taxable income, and Publication 529 covers the loss deduction; check the current editions on IRS.gov before you file, because figures and thresholds change year to year.
There is no exclusion for small amounts. No minimum. The commonly repeated idea that small winnings are tax-free confuses a reporting threshold for the sportsbook with an exemption for you, and those are not the same thing at all.
So when a UK operator argues about whether a freeplay counts as a stake for duty purposes, the equivalent US question simply does not arise. Your bonus bet won $240? That is $240 of other income on your return, no matter how it was funded.
Are free bets taxable, or only the winnings they produce?
Receiving the credit is generally not a taxable event; winning with it generally is. A bonus bet credit is not withdrawable cash, cannot be converted to money directly, and expires if unused, so most tax preparers treat it as having no realised value when it lands in your account. What it generates when it wins is a different matter, and that amount is ordinary income to you.
Be honest about the open edge here: the IRS has not published guidance that names sportsbook bonus bets specifically. The position above follows from general principles about realised income rather than from a rule written for promo credits. If your bonus activity runs into serious money, that ambiguity is exactly what a CPA is for.
Then there is the mechanic most bettors notice only at payout time. On a standard free bet the stake is not returned. Put a $100 bonus bet on a -110 line and a win pays $90.91, not $190.91. Your gross winnings for tax purposes are that $90.91, which looks identical to the cash version of the same bet.
The gap appears when the bet loses. A $100 cash wager that loses is a $100 gambling loss you may be able to deduct. A $100 bonus bet that loses costs you nothing and gives you nothing to deduct. Win with promos often enough and your reportable winnings grow while your deductible loss pool does not. That asymmetry, not the credit itself, is the thing that catches people.
When sportsbook promo taxes trigger a W-2G
A sportsbook issues Form W-2G on the same basis whether the winning stake was cash or bonus funds. For sports wagers, for payments made in 2026, the reporting threshold is winnings of $2,000 or more that are also at least 300 times the amount wagered, with federal withholding of 24% generally applying above $5,000. Thresholds differ by game type and are adjusted by Congress and the IRS from time to time, so verify the current numbers on IRS.gov rather than trusting a figure you read in a forum.
Two things follow from that structure. Most sports bets never come close to 300-to-1, so most winning bettors receive no W-2G at all for a profitable year. And the “amount wagered” on a promo bet is usually taken as the face value of the credit, which is one more detail worth confirming with your operator if a large bonus bet lands.
Here is what I would not do: treat the absence of a W-2G as permission to leave winnings off the return. Reporting is your obligation regardless of what paperwork arrives, and I also would not simply copy the net profit figure from your app’s year-end summary onto Schedule 1. Those summaries report net, the IRS wants gross winnings with losses handled separately, and the two numbers are rarely the same.
Offsetting free-bet winnings with gambling losses
Losses are deductible only up to the amount of winnings you report, and only if you itemize. Winnings generated by bonus bets qualify for that offset like any other winnings. You can never deduct more than you won, and you cannot carry an excess loss forward to next year.
Itemizing versus the standard deduction
Gambling losses go on Schedule A as an itemized deduction, which means claiming them only helps if your total itemized deductions beat the standard deduction. Most filers take the standard deduction, so most recreational bettors get no benefit at all from their losses while still owing tax on every dollar of reported winnings. A bettor with $5,000 of gross winnings, $5,000 of losses and no reason to itemize is taxed on $5,000 of income despite breaking even.
One more moving part: legislation enacted in 2025 limits the gambling loss deduction to 90% of losses for tax years beginning in 2026, and there has been ongoing discussion in Congress about amending it. Confirm its current status before you plan around it.
State rules add another layer. Several states do not allow a gambling loss deduction at all, so you can owe state tax on winnings you broke even on. Check your own state’s treatment.
Records the IRS expects
The IRS expects a contemporaneous log, not a reconstruction. Keep the date and type of wager, the sportsbook or venue, the amount staked and the amount won or lost, plus supporting documents: account statements, settled bet histories, W-2G forms and the promo terms attached to each credit. Screenshots of a bonus offer’s terms are useful later, because operators rotate promotions and the page you relied on may be gone by April.
Free bet tax rules in practice: how to track them
Build the record during the season, not the week before filing. A workable routine:
- Log every bonus bet as it settles, with the credit’s face value, the odds, the payout and whether the stake was returned.
- Keep bonus-funded wagers on a separate tab or column from cash wagers, so you can see at a glance which winnings have no matching deductible stake.
- Download your sportsbook’s betting history and account statement at least quarterly, since export windows and retained history vary by operator.
- Save the terms of each promotion, including any maximum cashout and whether the stake is returned on a win.
- Total gross winnings and total losses separately across all operators, rather than netting them per app.
- Reconcile against any W-2G forms you receive in January, then hand the whole file to your preparer.
Promotions have become a core acquisition tool as sportsbook platforms expand and compete for players, which means more bettors are holding bonus credits than ever. More credits, more lines in the log.
UK and US treatment side by side
| Question | United Kingdom | United States |
|---|---|---|
| Who pays tax on gambling | The operator, via Remote Gaming Duty | The player, via income tax |
| What the current dispute is about | How freeplays count for duty; “restricted players” proposed from April 2027 | No equivalent dispute |
| Is the free bet credit taxed | Not to the player | Generally not a taxable event on receipt |
| Are winnings from it taxed | No personal tax on winnings | Yes, gross winnings as other income on Schedule 1 |
| Can losses be offset | Not applicable to players | Up to winnings, only if you itemize on Schedule A |
| Does a missing tax form excuse reporting | Not applicable | No, report with or without a W-2G |
Where this guide stops and a CPA starts
This is educational information, not tax advice, and your situation almost certainly has wrinkles it does not cover. Whether you file as a recreational or professional gambler changes the analysis substantially, state rules diverge sharply on loss deductions, and the federal loss limitation taking effect for 2026 is still being argued over. If bonus bets are a meaningful part of your year, take the log to a licensed CPA or enrolled agent and let them apply the current rules to your numbers.
One last point that sits outside the tax code: a free bet is a marketing cost to the operator, not free money to you, and the house edge on whatever you stake it on has not moved. Set deposit and loss limits you are comfortable with, and use the self-exclusion and cool-off tools your sportsbook offers if betting stops being entertainment. If it has already stopped being entertainment, the tax question is not the one to deal with first.