Iowa Sports Betting Update: Changes to Iowa Withholding Requirements

Starting next year, Iowa income tax withholding on winning sports bets will change. Winning sports bets will still be subject to Iowa income tax. However, a recent law change will allow Iowa sportsbooks to conform much of their Iowa and federal income tax withholding practices.

The Iowa General Assembly enacted Senate File 605 during the 2025 legislative session. The new law takes effect January 1, 2026. The most important part of this bill involves Iowa income tax withholding obligations of sportsbooks. Iowa will start to use the same thresholds as federal law to determine when winning sports bets are subject to Iowa income tax withholding. In general, federal income tax must be withheld when the proceeds from sports wagers exceed $5,000 and are at least 300 times as large as the amount wagered.

Under existing Iowa law, there is no specific Iowa withholding requirement for sports wager winnings. This leads to very different withholding obligations, depending on whether the winner is an Iowa resident or not. Sportsbooks currently do not need to withhold Iowa income tax on any winning sports bets paid to Iowa residents. Meanwhile, sports wager winnings paid to nonresidents fall under a catch-all Iowa withholding provision for nonresident income. Neither of these outcomes of current Iowa law match federal withholding standards for sports bets.

Rolling Conformity to Federal Withholding Thresholds on Sports Bets

The new law does not simply copy and paste the current federal threshold (i.e. over $5,000 and 300 times the wager) into the Iowa statute. The new Iowa law says “[s]tate income tax shall be withheld on winnings from sports wagering…whenever federal income tax is required to be withheld from the same winnings in accordance with the Internal Revenue Code.”

This means that if the federal government changes the thresholds to withhold income tax from sports wagers, Iowa’s threshold will automatically follow the federal threshold.

Iowa Specific Withholding Rates

Iowa will follow the federal thresholds to decide when Iowa withholding on sports betting payouts is required. But Iowa will not use the 24% federal withholding rate. If a sportsbook is required to withhold Iowa income tax from a sports wager, the sportsbook will use an Iowa withholding rate of 3.8% in 2026. The 3.8% rate matches Iowa’s flat income tax rate that will be in effect for 2026.

Summary: Withholding Analysis for Winning Sports Wagers Starting in 2026

Starting next year, Iowa sportsbooks will generally follow a two-step process when it comes to Iowa withholding on sports bets.

1. Follow federal thresholds to determine whether to withhold Iowa income tax from a sports wager. If there is a federal withholding requirement for a winning sports wager, there is also an Iowa withholding requirement.

2. Use the Iowa withholding rate. If there is Iowa withholding on a winning sports bet, the Iowa withholding will occur at a rate of 3.8%.

Senate File 605 only addressed Iowa withholding thresholds for sports betting. Other Iowa withholding requirements for gambling payments remain the same. 

Contact one of our Nyemaster tax attorneys with questions about your Iowa tax obligations.