Whether your winning Super Bowl bets paid big or small, the Internal Revenue Service wants its cut.

Last night in the gambling capital of the country – Las Vegas – the Kansas City Chiefs beat the San Francisco 49ers with a record 67.8 million Americans expected to place a bet on Sunday’s Super Bowl game.

While some wagers made the news, like Drake’s betting $1.15 million on the Kansas City Chiefs and collecting a more than $2 million payout, and smaller prop bets — like $100 on how many times Taylor Swift is seen on camera — can seem like friendly fun, it all adds up to big money.

With legal sports betting markets in 38 states and Washington, D.C, traditional sports wagers at the Super Bowl were up 41% from the 2023 game, according to the American Gaming Association.

“I live in Washington D.C. and the explosive growth of sportsbooks next to sports stadiums around town is evidence that gambling (and acceptance of gambling) has grown exponentially in recent years,” Caroline Bruckner, professor and managing director, of Kogod Tax Policy Center at American University told Reckon News.

Even though California and Missouri, the home states of the San Francisco 49ers and the Kansas City Chiefs haven’t legalized a sports betting market, an estimated $23.1 billion in bets were placed on this year’s Super Bowl.

If you happened to be one of the lucky winners, it’s not all free money. And regardless of whether sports betting is legal in a state, the IRS says the activity is subject to excise taxes.

“If you wager money, keep in mind that the U.S. government expects to participate in your gains,” Mitchell Drossman, national director of wealth planning strategies at Bank of America told CNBC.

For example, if you wager $100 on the game and win $1,000, the $900 difference belongs on your federal tax return, Drossman explained.

Where you placed your bet matters too. Bets placed and won at a sports betting parlor, casino or other official wagger establishments will give you IRS Form W-2G or sometimes Form 1099-MISC for raffle or sweepstake prizes if you win $600 and your payout is 300 times your bet.

“Folks who bet on the Chiefs last night and won will report their tax returns on next year’s return,” Bruckner said.

And if you bet more than $5,000, there could be a mandatory tax withholding.

If the betting establishment didn’t provide you with Form W-2G, you’re still responsible for reporting all taxable income, like gambling winnings, to the IRS.

Failure to report gambling winnings is considered a violation of law and the IRS can learn of your winnings by comparing your income with the W-2 forms they receive.

Any inconsistencies could trigger an audit. Penalties range from prison time of five to 30 years for large wins or financial penalties for smaller winnings.

While larger bets could be seen as suspicious, more casual winning like fantasy football pools are less likely to be noticed by the IRS and don’t involve W-2 forms.

For bettors who lose, they may be able to save money during tax season.

“When it comes to losses, the rules are a bit different. You can only claim losses up to the extent of your winnings and only if you itemize [each win and loss]. You need to keep track all year of your winnings and losses in order to take advantage of this,” Bruckner told Reckon.