Do I owe Arizona state tax on sports betting and gambling winnings?
By the W2gMatch team · Sources checked 09-06-2026 · General information, not tax advice.
Yes. Arizona taxes gambling winnings at its flat 2.5% rate. Losses are deductible only by itemizing on the Arizona return, up to wagering gains, on Form 140 Schedule A, and Arizona Lottery winnings up to $5,000 are subtracted. Event wagering operators, fantasy sports operators, the lottery and racetracks must withhold Arizona tax from winnings subject to federal withholding.
How Arizona taxes the winnings
Arizona starts from federal adjusted gross income and applies a flat 2.5% for tax years from 2023. [1] Gambling winnings, whether from a tribal casino, an event wagering app, fantasy sports or the lottery, are in the base.
Losses on the Arizona return
An Arizona resident who itemizes completes Form 140 Schedule A, Itemized Deduction Adjustments. Its instructions state that you may deduct wagering losses only to the extent of wagering gains, and adjust the figure for the Arizona Lottery subtraction, so that losses matched to exempt lottery winnings are not deducted twice. [2] A taxpayer who takes the standard deduction deducts no losses in Arizona.
Because Schedule A starts from the federal itemized figure, whether the federal 90% limit carries into Arizona depends on Arizona's conformity to the 2025 federal act, which the Department's 2025 instructions predate.
What is withheld at the window
Section 43-405 requires the Arizona Lottery, racing permittees, fantasy sports contest operators and event wagering operators to withhold from “payments of prize winnings that are subject to federal withholding” an amount equal to the highest rate in section 43-1011, [3] which is the 2.5% flat rate. [1] Tribal casino payouts are outside this statute.
Residents, part-year residents and visitors
Residents are taxed on winnings from everywhere, including Las Vegas, with no Nevada tax to credit. Nonresidents with Arizona-source winnings, including a win at an Arizona casino or on an Arizona event wagering app, file Form 140NR and claim any Arizona withholding shown on the W-2G.
The federal return underneath
Federal: for tax years beginning in 2026, only 90% of gambling losses are deductible (the 90% gambling loss cap).
Every state page sits on the same federal rules: all winnings are reported on Schedule 1 whether or not a form arrives, and losses are an itemized deduction capped at winnings and, from 2026, at 90% of losses under amended section 165(d). The federal loss page and the by-state table show how Arizona compares.
Related questions
Are Arizona Lottery winnings taxed by Arizona?
Arizona allows a subtraction for Arizona Lottery winnings up to $5,000 per year; winnings above that are taxed at 2.5%.
Does an Arizona tribal casino withhold state tax?
The withholding statute names the lottery, racing, fantasy sports and event wagering operators. Tribal casino payouts carry federal withholding only.
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Sources
- K&R Strategic Partners, Arizona's 2.5% flat individual income tax rate, 2026 (secondary source)
- Arizona Department of Revenue, 2025 Form 140 Schedule A instructions, itemized deduction adjustments (gambling losses, lines 8 to 12), tax year 2025
- Arizona Revised Statutes § 43-405, Extension of withholding to gambling winnings, read September 6, 2026
Related
This page is general information about how U.S. federal and state tax rules apply to gambling, written to be checked against the sources it cites. It is not tax advice for your situation. A licensed CPA or enrolled agent should review your return before it is filed.