Iowa to Start Withholding State Income Tax on Bigger Sports Betting Winnings 

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Iowa has strict laws on gambling and its implementation. A recent measure requires online sports bet operators to withhold state taxes from winnings above a certain amount starting in January 2026. We discuss this in the article below. 

Iowa's state legislature unanimously approved a law requiring gambling companies to withhold state taxes from anyone who wins at least $5,000. The move aims to clarify when its taxes should be withheld and aligns with federal regulations, providing guidance for sportsbook operators.

Currently, any winning bets on sporting events is considered taxable income. This is at a rate of 6.75%, regardless of how great or small the amount won is.

Sports Betting in Iowa

Make no doubt about it: Sports betting in Iowa is big business. After introducing online sports gambling in 2019, the amount gambled in the state has been rising year upon year. This has gone from $368 million in 2020 to $2.6 billion in 2024. Only 2023 saw a dip from the previous year.

There had been worries that 2025 would see a further drop in revenue. Neighbouring state Missouri legalized sports betting recently and was the 39th state to do so. It was believed much of the state's trade would siphon that way. This could be a way of recouping some of the costs that may be lost.

However, all states around Iowa, sans Minnesota, now allow sports betting. So far, this legalization has failed to have an impact on growing income. This may be down to the quality of sports betting sites that have been attracted to the state. Providing safety, transparency and great odds, a host of big brands and names now operate there. You can find a summary here looking at the best Iowa betting sites and their offers.

This trend has been echoed across the US. Americans spend around $121 billion on sports betting per annum. This is a 30% increase since 2022.

To bet in other states, gamblers must either cross state lines or access services using VPN technology. Despite all this, gambling has managed to amass $45 million in state taxes. This money is placed into state funds. The money then goes to charities, philanthropy and safer gambling initiatives and treatment.

Concerns Over the Rise in Gambling Figures

While many praise the tax revenue these increased figures can bring, there have been some concerns. This is from data that suggests the rise has been linked to increasing household debt, lower credit scores and fewer savings. This is important as despite its flourishing nature, the industry is still young and its long-term implications have yet to be assessed.

The studies into this are few and far between, but one released last year by the University of California, Los Angeles and the University of Southern California showed that access to online sports betting could result in a higher rate of bankruptcy and lower credit scores. This suggests it can have an adverse impact on financial health. There were few solutions given to the problem. However, the paper did say that policymakers should attempt to protect consumers from the harms caused by problem gambling.

In response, the American Gaming Association pointed out how it is one of the most regulated industries in the country. They also highlighted the advantage it has of drawing people to legislated and law-abiding sites, instead of sending them to offshore, unregulated ones. They also pointed out that further research suggested the opposite, and that there was no correlation between financial health and access to online sportsbooks.

Online Casinos in Iowa

Despite the success of sports betting and its revenues, it is still not legal to use an online casino in Iowa. This has been a hotly contested debate in the state, with representatives such as Bobby Kaufmann continually advocating for the revenues and benefits it could bring.

His last attempt was with the House Study Bill 227. However, it stalled due to the close of the legislative session last April. He has said that he will not be putting forward any more legislation but would support and sponsor anyone who would.

Last year, a moratorium on the building of new casinos ended in July. This saw the focus turn to land-based casino operations instead of the online sphere. This has been noticeable in areas like Cedar Rapids where new casinos are being created.

It seems unlikely this will change anytime soon. However, the sports betting sector in Iowa is flourishing. As surrounding states introduce online sportsbooks, this does not seem to be diluting the profits of Iowa bookmakers. All the state needs is to make sure it keeps a tight hold on gambling laws. With more taxation such as this, extra funds can go towards responsible gambling initiatives and benefit the state in a range of different ways.

If you or anyone you know has a gambling problem, call 1-800-GAMBLER.