Kentucky Sports Betting Tax Rates & Expectations (2023)

Gov. Andy Beshear signed the bill legalizing sports betting in Kentucky on March 31, 2023. (Photo by Scott Utterback/Courier Journal / USA TODAY NETWORK)

Kentucky Sports Betting Tax Expectations

Kentucky Majority Floor Leader Damon Thayer has stated that he expects the state to receive an annual $23 million by taxing legal sportsbooks. Thayer, a keen proponent of legal Kentucky sports betting, referenced data from Tennessee when he revealed those projections. In 2022, Tennessee earned $68 million in sports betting tax income.

Tennessee has a larger population than Kentucky, with 7 million residents, compared to around 4.5 million in the Bluegrass State. It also imposes a 20% revenue tax, compared to the 14.25% Kentucky sports betting tax rate for online sportsbooks. As such, Thayer estimates that Kentucky could earn around one-third of what Tennessee receives, but those projections appear to be a little conservative.

After all, Tennessee’s population is only 55% larger than Kentucky’s, and the online tax rate is only 40% higher, so Kentucky could easily earn more than $23 million per year. If we look a little further south, Louisiana – a state with a similar population to Kentucky – charges just a 15% tax on online sports betting revenue, and it earned $33.9 million in 2022. As such, Kentucky may receive a similar amount.

The funds will go directly into the Kentucky Public Pension Fund. This fund was set up to provide retirement and disability pay, insurance and other benefits to more than 400,000 public servants in Kentucky. However, it was only 33% funded in 2021, so it was described as one of the worst-funded pension plans in the country, and sports betting tax could help shore it up.

How Kentucky Sports Betting Winnings Will Be Taxed

You will be required to pay tax on any winnings you earn from all of your gambling activities over the course of a year, including those from sportsbook promo codes. Any losses you incur can be deducted from any winning secured, meaning you will not be liable for tax if you do not generate an overall profit. For example, if your successful wagers generate a profit of $10,000, and your unsuccessful bets result in a loss of $11,000, you will not need to pay tax.

For that reason, it is important to keep a detailed record of wins and losses. That may be relatively straightforward if you only use one online sportsbook. However, it is advantageous to register with a variety of Kentucky legal sports betting sites. That will ensure you get the best sign-up bonuses in the Bluegrass State, and you can also compare their odds and grab the best lines on each wager you make. If you bet with multiple sportsbooks, racebooks and so on, it is advisable to maintain a profit/loss record.

If you do end the year in profit, you will be liable to pay tax on your winnings. The amount you must pay will depend on which tax bracket you are in. For example, the federal tax rate for $0 - $10,275 is 10%, compared to 32% for $170,051 - $215,950. Your winnings will be deemed taxable income by the IRS, so they will need to be included in your tax return. A tax professional can help you fill in the form correctly and make the necessary declarations.

Bettors will be able to wager on college hoops and their favorite sports. (Photo by Christopher Hanewinckel/USA TODAY Sports)

Claim & Report Kentucky Betting Winnings for Taxes

If you win more than $600 at an online sportsbook in Kentucky, it will be required to issue you with a W2-G Form or Form 1099-Misc. A copy will automatically be sent to the IRS too, alerting the agency. If you receive your winnings via PayPal or Venmo, you may be issued with a Form 1099-K. The IRS can use these forms when it processes your tax return.

Even if you do not receive one of these forms, you will still need to include any gambling winnings when filing your tax return. If you are audited, you must be able to prove your gambling losses, which will offset any gambling wins for tax purposes. As such, it is helpful to keep a log of your wins and losses throughout the year.

If you win more than $5,000 on a wager, and the payout is at least 300 times your bet amount, the sportsbook may need to withhold 24% of your winnings for federal income tax. There is a 6% Kentucky state tax too.

Bills Regulating Sports Betting Tax in Kentucky

Rep. Michael Meredith introduced Kentucky sports betting bill HB551 at the start of the 2023 legislative session. There had been a KY sports betting bill in each of the previous three years, including one that wanted to legalize poker apps, but these sports betting bill Kentucky attempts failed to gain the requisite support.

On March 13, the Kentucky House approved Rep. Meredith’s Kentucky sports betting bill. Kentucky sports betting proponents were cautiously optimistic about its chances of clearing the Senate. They had to wait until the final day of the legislative session, but state senators ultimately passed it on a 25-12 vote. Gov. Beshear quickly signed the Kentucky sports betting legislation.

The Kentucky sports betting bill permits retail sportsbooks at horse racing tracks and their satellite facilities, plus Kentucky Speedway, and they can also host three sports betting apps apiece.

The Kentucky Wildcats pose with the Governor s Cup trophy after beating Louisville. (Photo by Jordan Prather/USA TODAY Sports)

Closing Thoughts: Kentucky Sports Betting Tax

The Kentucky sports betting laws impose a relatively modest tax on online sportsbooks in the Bluegrass State. That should result in a competitive market, with lots of rival sportsbooks vying for your attention.

Some sites will offer some great Kentucky sportsbook promos to stand out from their rivals. If you bookmark this page, you can return when Kentucky sports wagering begins, and you will then be able to claim the best promos by clicking the links we have provided, including both a BetMGM Kentucky bonus code offer as well as one available via our Caesars Sportsbook Kentucky promo code.