Two states stand out with explicit, confirmed tax rules for horse racing bettors: Kentucky charges a 1.5% ADW excise tax on all amounts wagered by residents, and Minnesota withholds 9.85% from pari-mutuel winnings at the state level. If you bet from either state, these charges hit your account whether you notice them or not.
Do You Owe Taxes on Horse Racing WinningHow do state taxes on horse racing winnings actually work?
Federal tax rules get most of the attention. But states layer on their own obligations. Some tax the wager itself. Others withhold a percentage from winnings. A few do both. The details depend entirely on where you live, not where the track is located.
I always tell newer bettors: check your state rules before you cash a big ticket. A surprise withholding can make a winning day feel smaller fast. For the federal side first, see Do You Owe Taxes on Horse Racing Winnings? US IRS Rules Explained.
Kentucky: a 1.5% excise tax on every wager
Kentucky does something most states don't. It taxes the wager, not just the winnings. Under Kentucky Department of Revenue rules (KRS 138.510–138.550), ADW licensees must collect 1.5% of all amounts wagered by Kentucky residents and remit it to the state. That comes off the top before your bet even enters the pool.
So if I place a $100 win bet from Louisville, $1.50 goes to the state excise tax. It's small per bet, but it adds up across a full card. The track takeout still applies on top of that.
Minnesota: 9.85% withheld from pari-mutuel winnings
Minnesota takes a different approach. Under Minnesota Statute 290.92, subdivision 27, the state withholds 9.85% from pari-mutuel winnings. That's a meaningful chunk. If you land a trifecta that pays $500, Minnesota pulls roughly $49.25 before you see the money.
Minnesota also has a quirk worth knowing: residents cannot wager on in-state tracks like Canterbury Park or Running Aces through national ADW platforms. To understand how ADW licensing works across states, the Advance Deposit Wagering (ADW) explainer covers the mechanics clearly.
What about other states?
Most states that allow online ADW do not publish a specific pari-mutuel withholding rate in the same way Kentucky and Minnesota do. That doesn't mean your winnings are tax-free. All horse racing winnings are taxable federal income regardless of state. States with income taxes generally expect you to report gambling winnings on your state return even when no withholding occurs at the platform level.
North Carolina, for instance, legalized online ADW with a launch date no earlier than January 8, 2024, and set an ADW licensing fee of $1 million plus an annual fee equal to 1% of total pari-mutuel wagers from NC residents. That fee structure affects operators, not bettors directly, but it signals how states are thinking about this revenue stream.
For a full picture of where online horse betting is even permitted, the state-by-state ADW legal guide breaks it down clearly.
When does a W-2G form come into play at the state level?
The W-2G threshold is a federal trigger, but states often piggyback on it. If a federal W-2G is issued — winnings of 300-1 odds or greater paying at least $600 — your state tax authority sees that income too. Some states require additional withholding at that point. For the full federal threshold rules, read the IRS W-2G reporting guide.
State tax rules at a glance
| State | Tax Type | Rate | Who Pays |
|---|---|---|---|
| Kentucky | ADW excise tax on wagers | 1.5% of amount wagered | Collected by ADW licensee from resident bettors |
| Minnesota | State income withholding on winnings | 9.85% of pari-mutuel winnings | Withheld at source before payout |
| North Carolina | ADW operator licensing fee | 1% of total NC resident wagers (annual) | Operator, not bettor directly |
| All other ADW states | State income tax (varies) | Varies by state income tax rate | Bettor self-reports on state return |
Practical tips before you bet across state lines
- Your state of residence determines which state tax rules apply, not the track's location.
- If you live in Kentucky, expect 1.5% to come off every wager automatically.
- If you live in Minnesota, winnings above the reporting threshold will arrive already reduced by 9.85%.
- Keep records. Even without withholding, you'll need them at tax time.
- Check whether your platform's terms mention state-specific tax handling; most licensed ADWs spell this out.
Also worth noting: age rules vary by state just as tax rules do. Review ADW age limits and platform restrictions if you're unsure whether you're eligible to wager at all in your state.
Must be 18+ (21+ in Iowa, Washington, and several other states). Gambling problem? Call 1-800-GAMBLER.