This article is provided for educational purposes only. Sweepedia is not staffed by tax professionals or attorneys, and nothing in this guide constitutes tax, legal, or financial advice. Tax laws vary by state, change frequently, and individual circumstances differ. Always consult a qualified CPA or tax advisor before making decisions about your tax return.
Unlike traditional casino gambling, sweepstakes casino losses are generally not deductible on your federal tax return. The IRS treats Sweeps Coin redemptions as prize income — not gambling winnings — which means the standard gambling loss deduction under Internal Revenue Code Section 165(d) typically does not apply.
That distinction is more important than ever in 2026. The One Big Beautiful Bill Act (OBBBA) introduced a sweeping change to gambling taxation: a new 90% cap on deductible gambling losses. The rule has triggered widespread concern across the regulated casino industry.
If you play at sweepstakes casinos such as Stake.us, WOW Vegas, Chumba Casino, or Pulsz, you may have seen headlines about the 90% cap and wondered: Does this apply to sweepstakes players too?
The answer is more nuanced than most articles suggest. The 90% limitation applies specifically to losses deductible under IRC 165(d) — the section governing gambling activity. Because sweepstakes platforms are legally structured as promotional contests, not gambling operations, that framework may not apply at all.
And that is where things become counterintuitive. The 90% cap that has unsettled traditional gamblers likely does not restrict sweepstakes players — but not because sweepstakes are treated more favorably. Instead, it is because sweepstakes losses may never have qualified for deduction in the first place.
If Sweeps Coin redemptions are classified as prize income rather than gambling winnings, there may be no statutory basis to deduct losses — meaning the 90% cap is largely irrelevant to sweepstakes players.
Why Sweepstakes Casino Losses Are Different From Gambling Losses
To understand why sweepstakes casino losses do not follow the same tax rules as traditional gambling losses, you must start with how the IRS categorizes the underlying activity. The distinction is structural — and it begins with one critical question: Was there a wagering transaction?
At a traditional regulated casino or licensed online sportsbook, you place a wager. You put real money at risk with the expectation of winning additional money in return. The IRS classifies winnings from these wagers as gambling income, typically reported on Form W-2G. Under IRC Section 165(d), taxpayers may deduct gambling losses against those winnings on Schedule A, provided they itemize deductions.
Sweepstakes casinos operate under a fundamentally different legal framework. The model is not structured as wagering. Instead, it is built around promotional sweepstakes law.
How the Sweepstakes Model Actually Works
In a typical sweepstakes casino environment:
- You purchase Gold Coins (GC), a virtual currency used strictly for entertainment purposes. Gold Coins have no cash value and are not redeemable. This transaction is structured as a product purchase, not a wager.
- As a promotional bonus tied to that purchase — or through free methods such as daily logins, mail-in requests, or social media giveaways — you receive Sweeps Coins (SC).
- You use Sweeps Coins to play casino-style games. After satisfying playthrough requirements, Sweeps Coins may be redeemed for cash prizes.
- Critically, the entire system is built around the legal principle of “no purchase necessary.” Anyone can obtain Sweeps Coins without spending money.
Because no mandatory wager occurs in this structure, the IRS generally does not treat Sweeps Coin redemptions the same way it treats regulated gambling winnings.
Instead, most tax professionals classify SC redemptions as prize or award income — similar to winning a sweepstakes drawing, promotional contest, or game show prize.
The gambling loss deduction under IRC Section 165(d) applies specifically to “losses from wagering transactions.” If sweepstakes activity is not legally considered wagering, that deduction framework may not apply at all.
The Tax Forms Reveal the Classification
The tax form issued by the operator reinforces this distinction. Sweepstakes casinos typically issue Form 1099-MISC when redemptions exceed the reporting threshold. Traditional casinos issue Form W-2G for gambling winnings.
That difference is not cosmetic. It signals how the income is categorized for federal tax purposes. Form W-2G corresponds to wagering activity. Form 1099-MISC corresponds to prize or miscellaneous income.
The consequence for your tax return is significant: if sweepstakes play is not considered a wagering transaction, the gambling loss deduction under IRC Section 165(d) may not be available — regardless of how much you spent on Gold Coins or how much you lost during gameplay.
The OBBBA 90% Gambling Loss Rule: Does It Apply to Sweepstakes Players?
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduced one of the most consequential changes to gambling taxation in decades. Beginning January 1, 2026, the deduction for gambling losses is capped at 90% of winnings, down from the previous 100%.
The change has generated widespread concern across the regulated gambling industry. But for sweepstakes casino players, the impact is far more nuanced than headlines suggest.
What the 90% Rule Actually Says
Before 2026, recreational gamblers who itemized deductions could deduct 100% of documented gambling losses, up to the amount of their winnings. If you won $10,000 and lost $10,000, your taxable gambling income was zero.
Under the OBBBA, that calculation changes. Even if your losses equal or exceed your winnings, you may now deduct only 90% of those losses. The remaining 10% becomes taxable — creating what tax professionals call “phantom income.”
| Scenario | 2025 Rules | 2026 Rules (OBBBA) |
|---|---|---|
| Winnings: $10,000 Losses: $10,000 |
Deduction: $10,000 Taxable: $0 |
Deduction: $9,000 Taxable: $1,000 |
| Winnings: $5,000 Losses: $5,000 |
Deduction: $5,000 Taxable: $0 |
Deduction: $4,500 Taxable: $500 |
| Winnings: $25,000 Losses: $30,000 |
Deduction: $25,000 Taxable: $0 |
Deduction: $22,500* Taxable: $2,500 |
*Losses are first capped at the amount of winnings ($25,000), then reduced to 90% under the new rule: 90% of $25,000 = $22,500.
The Joint Committee on Taxation estimates the provision will raise approximately $1.1 billion in federal revenue over the next decade. Legislative efforts — including the proposed FAIR BET Act — seek to restore the full 100% deduction, but no repeal has advanced as of February 2026.
Why the 90% Rule Likely Does Not Affect Sweepstakes Players
Here is where the issue becomes counterintuitive.
The 90% cap applies specifically to deductions for “losses from wagering transactions” under IRC Section 165(d). As explained earlier, sweepstakes casino play is generally not classified as a wagering transaction. Sweeps Coin redemptions are typically treated as prize income, not gambling winnings.
That distinction has a direct consequence:
- The standard gambling loss deduction may not apply to sweepstakes activity.
- If the base deduction does not apply, the 90% limitation is irrelevant.
In practical terms, the rule change that has unsettled traditional gamblers is largely beside the point for sweepstakes players — not because sweepstakes received favorable treatment, but because losses may never have qualified for deduction under prevailing interpretations.
Traditional gamblers may deduct 90% of documented losses. Sweepstakes players, under current interpretations, may be able to deduct none.
Important caveat: If you both play at sweepstakes casinos and place wagers at regulated casinos or sportsbooks, the 90% cap absolutely applies to your traditional gambling losses. Maintain separate documentation for each type of activity, as they are likely reported and treated differently for tax purposes.
When Sweepstakes Play Could Be Reclassified as Gambling
There is meaningful ambiguity in this area. The IRS has not issued specific guidance addressing sweepstakes casino models. The “prize income” interpretation is based on platform structure and prevailing professional analysis — not on explicit IRS rulings specific to sweepstakes casinos.
Some tax advisors argue that certain sweepstakes activity may resemble gambling closely enough to qualify as wagering, particularly where players consistently purchase Gold Coin packages with the expectation of receiving Sweeps Coins for redemption.
Several developments could shift classification over time:
- State regulatory actions. Some states have moved to restrict or classify sweepstakes platforms as gambling.
- Litigation outcomes. Court rulings could influence federal tax treatment.
- Platform evolution. As sweepstakes casinos increasingly resemble regulated gambling operations, the legal distinction may narrow.
If sweepstakes activity were ultimately treated as gambling for federal tax purposes, the 90% loss deduction cap would apply in full. Players would then be able to deduct 90% of documented losses against Sweeps Coin redemption income — a materially different outcome from the current “no deduction” interpretation.
For a comprehensive analysis of this classification debate, see our complete guide to sweepstakes casino taxes .
What About Gold Coin Purchases — Are Those Deductible?
This is one of the most common questions sweepstakes players ask — and the answer is straightforward: no.
Gold Coins have no monetary value. Every major sweepstakes platform’s terms of service state this explicitly. When you purchase a Gold Coin package, you are buying a digital entertainment product — not placing a bet, not making an investment, and not incurring a deductible gambling loss.
A useful analogy is arcade tokens. If you purchase tokens at an arcade and do not win a prize, you cannot deduct the cost of those tokens on your tax return. The IRS views Gold Coin purchases in a similar way: they are personal entertainment expenses, which are not deductible under the tax code.
Even under the most generous interpretation — one in which Sweeps Coin gameplay were treated as gambling — Gold Coin purchases would still not qualify as wagering losses. A gambling “loss” involves money directly risked on a bet. Because Gold Coins cannot be redeemed and have no cash value, they do not represent money placed at risk in a wagering transaction.
Gold Coin purchases are personal entertainment expenses. They are not deductible — regardless of whether they were purchased in 2025 or 2026, and regardless of how the 90% OBBBA rule applies.
For a detailed breakdown of how Gold Coins and Sweeps Coins function legally, see our guide explaining the dual-currency sweepstakes model .
How to Protect Yourself: Records Every Sweepstakes Player Should Keep
Even if sweepstakes losses are not deductible under current interpretations, maintaining detailed records remains essential. Good documentation protects you in ways that extend well beyond deductions.
Why Recordkeeping Still Matters
- Accurate income reporting. If the IRS questions the amount of prize income you reported, detailed records demonstrate that you did not understate your winnings.
- Audit defense. Mismatches between what platforms report via 1099-MISC and what you include on your return can trigger scrutiny. Organized records resolve discrepancies quickly.
- Future rule changes. If the IRS eventually clarifies or modifies the tax treatment of sweepstakes play, historical documentation allows you to evaluate amended returns.
- State compliance. Some states impose separate reporting requirements for prize income. Clean records ensure you remain compliant at both federal and state levels.
What You Should Track
For every sweepstakes casino you use, maintain records of:
- All Sweeps Coin redemptions — dates, amounts, platform name, and payout method.
- All Gold Coin purchases — dates, amounts, payment method, and receipts or bank confirmations.
- 1099-MISC forms — retain every form received and document instances where a platform should have issued one but did not.
- Account transaction histories — export or screenshot platform logs at least quarterly.
- Free Sweeps Coins received — track SC earned from mail-in entries, daily bonuses, giveaways, and promotions separately from SC tied to purchases.
A simple spreadsheet organized by platform and month is sufficient for most players. The objective is clarity — a defensible record that clearly shows income received and activity conducted.
Learn Smart & Responsible Sweepstakes Play →Estimate Your Tax Liability Before Filing
A common mistake sweepstakes players make is assuming that the 24% federal withholding rate applies to all winnings. In reality, your effective tax rate depends on your total annual income, filing status, and state of residence.
For many casual players, the actual effective rate is lower than 24%. For higher-income players, it may be higher. Estimating your liability before filing helps you avoid both unexpected balances due and unnecessary overpayments.
Use our dedicated sweepstakes casino tax calculator to project your federal and state tax exposure based on 2026 brackets. Enter your total income, filing status, state, and redemptions to see a personalized estimate.
What the FAIR BET Act Could Mean for Sweepstakes Players
The FAIR BET Act (H.R. 4304), introduced by Rep. Dina Titus (D-NV) in July 2025, would restore the gambling loss deduction to 100%, reversing the OBBBA’s 90% cap. The proposal has received bipartisan support and backing from major gaming industry stakeholders.
As of February 2026, however, none of the proposed repeal bills — including related Senate and House measures — have advanced. Legislative focus has shifted toward other priorities, and the 90% cap remains in effect.
For sweepstakes players, the FAIR BET Act would only become relevant if sweepstakes activity were formally classified as gambling for federal tax purposes. If that reclassification occurred, restoring the 100% deduction would allow sweepstakes players to offset all documented losses against redemption income — rather than being subject to the 90% limitation.
Until such a reclassification occurs, the FAIR BET Act debate primarily affects traditional gamblers and sports bettors. Sweepstakes players should monitor developments, but should not expect immediate changes to their 2026 tax treatment.
For updates on evolving state regulations and federal policy shifts, review our regularly updated coverage of sweepstakes casino legality in 2026 .
Bottom Line: Sweepstakes Casino Losses and Your 2026 Taxes
If you play sweepstakes casinos in 2026, here is what ultimately matters:
- Sweeps Coin redemptions are taxable income. Every dollar you redeem is reportable as prize income on your federal return — whether or not you receive a Form 1099-MISC.
- Your sweepstakes losses are likely not deductible. Because sweepstakes play is generally not classified as gambling, the loss deduction under IRC Section 165(d) — including the new 90% OBBBA cap — likely does not apply.
- Gold Coin purchases are not deductible. They are treated as personal entertainment expenses, not wagering losses.
- If you also gamble traditionally, the 90% rule applies there. Regulated casino and sportsbook losses are subject to the OBBBA cap. Keep sweepstakes activity and traditional gambling activity documented separately.
- Detailed records are essential. Clean documentation protects you in audits, supports accurate reporting, and positions you to respond if classification rules change.
- Consult a tax professional. The IRS has not issued definitive sweepstakes-specific guidance, and this area of tax law continues to evolve.
Sweepstakes income is taxable. Sweepstakes losses are probably not deductible. Plan accordingly before you file.
Frequently Asked Questions
Can I deduct Sweeps Coin losses on my taxes?
Does the new 90% OBBBA gambling loss rule apply to sweepstakes casinos?
Are Gold Coin purchases tax-deductible?
What if I won at a sweepstakes casino but lost at a traditional casino?
Do I need to itemize deductions to claim gambling losses?
Will the FAIR BET Act change anything for sweepstakes players?
Sources and Further Reading
- IRS Topic No. 419 — Gambling Income and Losses
- IRS Publication 525 — Taxable and Nontaxable Income
- Internal Revenue Code Section 165(d) — Losses from Wagering Transactions
- One Big Beautiful Bill Act (OBBBA), signed July 4, 2025 — Section 165(d) amendment
- FAIR BET Act (H.R. 4304, 119th Congress)
- Tax Foundation — Analysis of OBBBA gambling deduction changes
- National Association of Tax Professionals — Commentary on OBBBA implementation
This article is part of Sweepedia’s tax and legal resource center for sweepstakes casino players. For comprehensive reporting guidance, review our Sweepstakes Casino Taxes: Complete Guide . To project your federal and state liability before filing, use the Sweepstakes Casino Tax Calculator .