Starting from 2026, sports betting players in Iowa, USA, will find that the amount they receive when collecting large profits is a bit different. According to Senate File No. 605 signed by Governor Kim Reynolds in 2025, the state will reform the income tax collection method for sports betting profits, and part of the tax burden will be advanced from the annual reporting stage to the payout stage for withholding. This new regulation will officially take effect on January 1, 2026.
How is the withholding tax collected? Bundled with federal rules
The core of this reform is to directly link the state-level withholding tax trigger conditions to the current federal tax rules. Simply put, it's "federal deduction, state deduction; no federal deduction, no state deduction".
The specific rules are as follows:
Consistent triggering conditions: When a sports betting payout amount simultaneously meets the criteria of "exceeding $600" and "reaching 300 times the betting amount", the betting company needs to submit a W-2G form to the IRS. When the profit further exceeds $5,000 and still meets the 300 times condition, the federal will withhold 24% of the income tax.
State tax rate calculated independently: Once the above federal withholding threshold is reached, Iowa's betting companies must additionally withhold state income tax from the same payout. This provides a standardized framework for betting operators. For more global regulatory dynamics, continue to follow PASA's industry analysis on the official website.
What's the impact on bettors? Taxes are deducted earlier, and the tax rate has been reduced
For players, the most direct change is that some high profits in the future will not be available in full at the time of withdrawal, but will be pre-deducted for both federal and state taxes. However, there is a seemingly contradictory but actually beneficial detail: the state withholding tax rate has been reduced from the original 6.75% to 3.8%.
This means that although the timing of tax payment has been advanced, the actual burden of state tax rate has been reduced. When withholding occurs, the betting company will directly deduct 3.8% of the state tax and remit it to the Iowa Department of Revenue. Players receive the net income after tax, without the need to pay the full state tax part again in the next year's tax return.
However, state officials also remind that the withheld tax may not necessarily be the final tax liability. Players still need to declare all gambling income for the year when filing their personal income tax, and specific circumstances such as total income and deductions will affect the final tax burden, which may require additional tax payments or result in a refund.
New tasks for betting companies: registration, calculation, remittance, and reporting
The new law brings clear new compliance obligations to sports betting companies operating in Iowa. Their task list has increased:
•Registration: Betting companies required to withhold state tax must register with the state government as withholding agents.
•Calculation and remittance: Accurately calculate the amount of state withholding tax when meeting federal triggering conditions, and timely remit the tax to the state tax department.
•Reporting: Complete all related tax reporting work.
The state government states that this practice of linking state rules with the federal IRS management system simplifies the compliance process for betting companies, while also ensuring more effective tax collection on large-scale sports betting profits.
Overall, Iowa's reform is not about imposing new taxes, but about changing the timing of some tax collections, aiming to enhance tax efficiency and enable betting companies to play a more active role in the tax process.
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This article is from "PASA-Global iGaming Leaders" gambling industry news channel:https://t.me/pasa_news
Original in-depth gambling channel:https://t.me/gamblingdeep
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PASA official website: https://www.pasa.news
