The Phantom Income Tax created by last year’s “Big Beautiful Bill” is now facing repeal, as the newly introduced FULL HOUSE Act moves to restore the long-standing 100% deduction on gambling losses and undo a provision that taxes players on money they never actually won.
The issue stems from a technical change quietly included in the massive federal budget package, where lawmakers reduced the allowable deduction for gambling losses from 100% to 90%. While the adjustment appeared minor on paper, it fundamentally altered how gambling income is taxed in the United States and triggered widespread backlash across the gaming industry.
How the Big Beautiful Bill Created Phantom Income
Under the revised tax rule, gamblers may only deduct 90% of their losses against their winnings. This creates “phantom income,” where players are taxed on profits that do not exist in reality.
A player who wins $100,000 and loses $100,000 over the course of a year would previously owe no gambling-related taxes. Under the Big Beautiful Bill framework, that same player is treated as having $10,000 in taxable income, despite breaking even. The income exists only on paper, not in cash.
This provision took effect at the start of the year and immediately drew criticism for penalizing legal gambling activity while offering no clear consumer protection or regulatory benefit.
Why the FULL HOUSE Act Changes the Equation
The FULL HOUSE Act, introduced by Rep. Steven Horsford of Nevada and Rep. Max Miller of Ohio, is designed as a clean repeal of the Phantom Income Tax provision. The legislation restores the 100% gambling loss deduction exactly as it existed before the budget bill was passed.
Unlike earlier proposals, the FULL HOUSE Act is positioned within the House Ways and Means Committee, where all federal tax legislation must originate. That procedural reality gives the bill a clearer path forward than previous efforts that stalled despite broad support.
The goal is not to modify or refine the deduction but to fully reverse the unintended consequence introduced by the Big Beautiful Bill.
Why the Phantom Income Tax Matters to Legal Gaming
The Phantom Income Tax disproportionately affects high-volume players, including sports bettors, poker players, and daily fantasy participants who may place large numbers of bets without consistent net profit. However, the implications extend well beyond individual taxpayers.
When legal gambling becomes economically irrational, players are incentivized to reduce play or seek alternatives outside regulated markets. That shift threatens consumer protections, market transparency, and state tax revenue, while strengthening offshore and illegal operators.
For casinos and sportsbooks, reduced wagering volume impacts revenue, employment, and the economic ecosystems built around regulated gaming jurisdictions.
Bipartisan Agreement on a Policy Mistake
What makes the FULL HOUSE Act notable is the bipartisan recognition that the Phantom Income Tax was not an intentional policy decision, but a legislative oversight. Lawmakers from both parties have acknowledged that the provision unfairly burdens gamblers without advancing responsible gaming or regulatory goals.
The bill’s sponsors have emphasized that the focus is not on credit or politics, but on fixing a problem before it causes lasting harm to legal markets.
Why Speed Matters
Every month the Phantom Income Tax remains in effect increases the risk of long-term behavioral change among players. Once betting activity shifts away from regulated channels, restoring confidence becomes significantly more difficult.
The FULL HOUSE Act offers Congress a chance to correct course early, reaffirming that gaming tax policy should be grounded in economic reality rather than accounting fiction.
The Bottom Line
The Big Beautiful Bill’s Phantom Income Tax introduced a fundamental flaw into U.S. gambling taxation by taxing losses as income. The FULL HOUSE Act represents the strongest and most practical effort to undo that mistake and restore a fair, workable standard.
By returning to a 100% loss deduction, lawmakers would reinforce the principle that taxes should apply to real winnings—not imaginary ones—while protecting the integrity of the regulated gaming market.
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Stephen A. Crystal
SCCG Management
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