Iowa will change the way it collects earnings tax on sports activities betting winnings starting in 2026, shifting a part of the tax obligation from annual submitting to the payout stage for sure qualifying wins. The replace follows the passage of Senate File 605, which Governor Kim Reynolds signed into legislation in 2025. The new necessities take impact on January 1, 2026.
Under the legislation, sportsbooks working in Iowa should withhold state earnings tax from sports activities wagering winnings when federal earnings tax withholding already applies. State steering hyperlinks Iowa’s withholding obligation immediately to federal thresholds, making a single set off level for when taxes are deducted at payout fairly than paid later by way of annual returns.
Federal Thresholds Drive The New Withholding Rule
Federal tax guidelines stay the idea for figuring out when withholding applies. Under the Internal Revenue Code, sports activities wagering winnings should be reported on a Form W-2G once they exceed $600 and are a minimum of 300 occasions the quantity wagered. Federal earnings tax withholding applies at a charge of 24% when winnings exceed $5,000 and meet the identical 300-times threshold.
Iowa’s new law mirrors that construction. When a sports activities betting payout meets the federal withholding standards, sportsbooks should additionally withhold Iowa earnings tax from the identical payout. When federal withholding doesn’t apply, state withholding doesn’t apply both, despite the fact that reporting necessities should still exist in sure conditions.
State steering explains that some sports betting winnings should still require reporting with out withholding, relying on the scale of the payout and wager. The new legislation modifications when taxes are collected, not whether or not sports activities betting winnings are taxable earnings.
State Withholding Rate Drops As Collection Timing Shifts
Alongside the brand new withholding requirement, Iowa is lowering the state earnings tax charge utilized to sports activities betting winnings. Beginning in 2026, the speed will drop from 6.75% to 3.8%.
When withholding applies, sportsbooks will deduct the three.8% state tax from qualifying payouts and remit these funds immediately to the Iowa Department of Revenue. As a consequence, some bettors will obtain winnings web of each federal and state withholding fairly than settling the total state quantity later when submitting their earnings tax return.
Taxpayers who’re required to file an Iowa particular person earnings tax return should nonetheless report all playing winnings, together with sports activities wagering, obtained in the course of the 12 months. State officers word that the quantity withheld at payout might not replicate the ultimate tax owed, as particular person circumstances equivalent to whole earnings and deductions can have an effect on legal responsibility.
New Compliance Duties For Sportsbooks
The legislation additionally introduces new compliance obligations for sportsbooks. Operators already required to withhold federal earnings tax on qualifying sports activities betting winnings should now withhold Iowa earnings tax as properly when the federal set off is met. If Iowa withholding is required, the sportsbook should register as a withholding agent with the state, calculate the right amount, remit the funds, and full the related reporting.
By tying state withholding to federal guidelines administered by the Internal Revenue Service, Iowa gives sportsbooks with a standardized framework for figuring out when withholding applies. State officers say this method simplifies compliance whereas bettering the gathering of taxes on bigger sports activities betting wins.
For bettors, the change signifies that sure high-value sports activities betting payouts will not be paid in full on the time of withdrawal beginning in 2026. Officials emphasised that this doesn’t introduce a brand new tax on sports activities wagering; it modifications when a part of the tax is collected.
