Phantom Income: The New Risk for High-Volume Bettors

Here's a term every serious Ohio bettor needs to learn before 2026: phantom income.

It's money that doesn't exist in your bank account, that you never saw, never spent, and never had—but the IRS says you owe taxes on it anyway. And starting January 1, 2026, it's going to hit a lot of bettors who thought they were just breaking even.

What Is Phantom Income?

Phantom income is taxable income that exists only on paper. In the gambling context, it appears when you can't fully deduct your losses against your winnings.

Under the new tax law (the "One Big Beautiful Bill Act" passed in 2025), gamblers can only deduct losses up to 90% of their winnings—down from 100%. That 10% gap creates phantom income.

You broke even. Your net result is zero. But the IRS sees taxable income equal to 10% of your total winnings.

How It Works in Practice

Let's walk through what actually happens when you file your 2026 taxes as an Ohio bettor:

Same year. Same results. But under 2026 rules, you owe taxes on $4,000 of income that never touched your wallet.

The Real-Dollar Impact

Phantom income hits differently depending on your betting volume and tax bracket. Here's what various profiles might actually owe:

If you bet $50,000 over the course of a year and break exactly even—win some, lose some, net zero—you're writing a $1,275 check to the government for income you never received.

Why Does This Exist?

The 90% cap was included in the OBBBA as a revenue-generating measure. From the government's perspective, gambling generates measurable wins that should be taxed—regardless of offsetting losses.

The policy rationale (agree with it or not): if you're actively choosing to gamble at high volume, you're engaging in a taxable activity. The 10% "haircut" on loss deductions ensures that activity contributes tax revenue.

For bettors, it fundamentally changes the break-even calculation. "Don't lose money" is no longer good enough. You need to either profit or reduce volume.

Who Gets Hit Hardest?

The Grinders

Bettors who place high volume trying to eke out small edges get crushed. If you're betting $1,000/week hoping to profit 2-3%, you're now paying a tax that probably exceeds your expected profit margin.

The Break-Even Crowd

Many recreational bettors are roughly break-even over time. They win some weeks, lose some weeks, and end up close to flat. Under old rules, that meant no tax liability. Now it means guaranteed tax liability.

Bonus Hunters

If you sign up for sportsbooks to capture welcome bonuses and churn through wagering requirements, you're generating huge "gross wins" on paper even if your net result is modest. That inflates your phantom income.

What About Winning Bettors?

If you're actually profitable, phantom income still applies but stings less because you have real income to offset the tax bill.

In this case, the 90% cap doesn't bite because your losses ($45,000) are less than 90% of your wins ($54,000). You're taxed on your actual profit—which is how it should work.

The cap only creates phantom income when your losses are high relative to your wins—i.e., when you're breaking even or close to it.

Strategies to Minimize the Damage

1. Reduce Volume

The simplest solution: bet less. Lower volume means lower gross wins, which means lower phantom income. If you're betting for entertainment and typically break even, consider whether the action is worth the new tax cost.

2. Focus on Profitability

If you're going to bet seriously, make sure you're actually winning. A profitable bettor pays taxes on real income. A break-even bettor pays taxes on phantom income. Sharpen your edge or step back.

3. Track Everything Meticulously

You can only deduct losses you can prove. Without documentation, you lose the right to deduct anything—and you're taxed on 100% of reported wins. Detailed tracking is now non-negotiable.

4. Consider the Standard Deduction

Gambling losses are only deductible if you itemize. If your total itemized deductions don't exceed the standard deduction ($14,600 single / $29,200 married in 2026), you might be better off not itemizing—in which case the 90% cap is irrelevant because you can't deduct losses anyway.

The Bottom Line

Phantom income is real, it's coming in 2026, and it changes the math for anyone betting at meaningful volume. The key takeaways:

• Break-even is no longer tax-neutral. If you win and lose the same amount, you owe taxes on 10% of your wins.
• Volume matters more than profit. Higher action = higher phantom income, regardless of results.
• Documentation is mandatory. Without proof of losses, you get zero deductions.
• The math might not work anymore. For many grinders and casual bettors, the tax cost may exceed the expected value of betting.

Run the numbers for your own situation. If you're betting $500/week and breaking even, you're now paying roughly $650/year in taxes on income that doesn't exist. Is that worth the entertainment? Only you can answer that—but at least now you know the question to ask.