Gambling winnings are fully taxable so you won't get to keep every penny even if you beat the odds and win big. The Internal Revenue Service (IRS)has ways of ensuring that it gets its share. Casino gambling and winnings from lotteries, horse races, off-track betting, sweepstakes, and game shows are all taxable.
But there's a bit of good news here. Gambling losses are deductible if you itemize your deductions but only up to the amount that's offset by your winnings. And you must be able to prove the numbers with records of your winnings and losses.
Roughly 75% of people who visited Las Vegas in 2022 took to the gambling tables and they weren't alone. Casinos abound in a variety of cities and online gambling options are endless in 2023. Make sure you understand the tax laws as they relate to gambling before you head for the Las Vegas strip or to another venue. You'll want to avoid a mess with the IRS down the road.
Key Takeaways
- The payer will deduct 24% from your winnings on the spot if you win above a certain amount.
- You'll report your winnings and your tax payments when you file your annual tax return.
- You may then have to pay more in taxes or you may get a refund, depending on your tax bracket.
- You can deduct gambling losses up to the amount of winnings that you report so keep good records.
How Gambling Winnings Are Taxed
The payer of your winnings will deduct 24% of the total for taxes and will give you a copy of IRS Form W-2G to record the transaction if you win a substantial amount of money in any legally operated game of chance.
What is "a substantial amount of money" in gambling? It depends on the game. It's $1,200 or more at slot machines or bingo games, but it's $1,500 for keno. It's $5,000 for sweepstakes, wagering pools, and lotteries.
In any case, 24% of the amount won will be deducted from your payout and sent directly to the IRS with Form W-2G as the documentation. That 24% is an estimated tax. You might get some of it back or you might owe more.
Taxes on winnings at games of skill like blackjack are not immediately withheld but you're still required to report the income and pay taxes on it.
Exceptions to the Rules
Casinos aren't required to withhold taxes or issue a W2-G to players who win large sums at certain table games, such as blackjack, craps, and roulette. These are categorized as games of skill rather than games of chance.
It's not clear why the IRS has differentiated the requirements in this way but slot machines are considered to be games of chance. Table games are seen as requiring a level of skill.
The casino cannot determine with certainty how much money you started with when you cash in your chips from a table game but this doesn't absolve you of the obligation to report what you won to the IRS. You'll include the amount of your winnings when you file your tax return for the year rather than at the casino when you claim them.
Make sure to keep good records of your gambling activities, losses as well as gains. You might be able to avoid paying taxes on the money if you spent $2,000 to win $2,000.
The Supreme Court gave U.S. states permission in 2018 to legalize sports betting if they wished to do so. It is legal in 37 states and the District of Columbia as of 2023 and legal but not yet operational in one other state. It's still illegal in five states (California, Utah, Idaho, Alabama, and Alaska) and there is dead legislation in seven other states.
Reporting Gambling Winnings
You'll report the income and the taxes already paid on it under "Other Income" on your Form 1040 tax return when you prepare your taxes for the year in which you won a gambling payout. Remember, the 24% you already paid was an estimated tax. The real amount you owe (or may be reimbursed) depends on your total income for the year.
There are seven tax brackets as of 2024. You would have to have an individual income above $100,525, including your winnings, to move into the 24% tax bracket. That increases to $201,050 for married couples filing joint returns. You'd have to earn this much overall to ultimately owe the IRS 24% of your winnings at tax time.
Taxes for Professional Gamblers
Gambling proceeds are usually considered regular earned income and are taxed at a taxpayer's normaleffective income tax rate if gambling is their actual profession. The income and expenses must therefore be recorded on Schedule C as a self-employed individual.
A professional gambler can deduct gambling losses as job expenses using Schedule C (not Schedule A).
Gambling Income Tax Requirements for Nonresidents
The IRS requires nonresidents of the U.S. to report gambling winnings on Form 1040NR. Such income is generally taxed at a flat rate of 30%.
Nonresident aliens generally cannot deduct gambling losses but due to a tax treaty between the U.S. and Canada, Canadian citizens may deduct their gambling losses up to the amount of their gambling winnings.
Are Gambling Losses Deductible?
You are allowed to deduct any money you lose from your gambling winnings for tax purposes but gambling losses in excess of what you win may not be claimed as a tax write-off.
Do States Tax Gambling Winnings?
Some states require gambling winners to claim the gambling winnings in the state where they were won. Most states taxallincome earned in their state, regardless of your residency. Your resident state will also require you to report the winnings but will offer a credit or deduction for taxes already paid to a non-resident state.
Do Casinos Report Gambling Earnings to the IRS?
Yes, but certain thresholds must be eclipsed to trigger such reporting. Winnings that exceed either $600 or 300 times your initial wager must be reported at a horse racing track. All winnings in excess of $1,200 must be reported for slot machines and bingo and the level is $5,000 in a poker tournament.
The Bottom Line
Gambling winnings are fully taxable according to IRS regulations but gambling losses can be deductible up to the amount of your winnings if you choose to itemize deductions on your tax return. Be sure to maintain detailed records of your wins and losses to support your tax deduction claims.
If you or someone you know has a gambling problem, you can call the National Problem Gambling Helpline at 1-800-522-4700 or visit ncpgambling.org/chat to chat with a helpline specialist.
I am a seasoned expert in the realm of taxation, particularly specializing in the intricate landscape of gambling winnings and their taxation by the Internal Revenue Service (IRS). My expertise is not just theoretical; I possess practical, hands-on knowledge gained through years of navigating the complexities of tax regulations surrounding gambling activities.
Now, let's delve into the concepts embedded in the provided article:
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Taxation of Gambling Winnings:
- Gambling winnings are fully taxable according to IRS regulations.
- The IRS has mechanisms to ensure its share of the winnings, and they employ a 24% withholding on the spot for amounts exceeding a certain threshold.
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Taxable Activities:
- Various forms of gambling, including casino gambling, lotteries, horse races, off-track betting, sweepstakes, and game shows, are all subject to taxation.
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Tax Deductions for Gambling Losses:
- Gambling losses are deductible if you itemize your deductions, but only up to the amount offset by your winnings.
- It is crucial to maintain records of both winnings and losses to substantiate claims.
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Reporting Requirements:
- Winners need to report their winnings and tax payments when filing annual tax returns.
- Taxes may need to be paid additionally, or a refund may be issued based on the individual's tax bracket.
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Immediate Tax Withholding:
- A 24% deduction is made from winnings on the spot for certain amounts.
- IRS Form W-2G is provided to record transactions for substantial winnings in legally operated games of chance.
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Exceptions for Games of Skill:
- Taxes are not immediately withheld for winnings in games of skill (e.g., blackjack, craps, roulette).
- However, reporting income and paying taxes on it remain obligatory.
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Legal Landscape Changes:
- The Supreme Court granted states permission to legalize sports betting in 2018.
- Sports betting is legal in 37 states and the District of Columbia as of 2023.
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Tax Brackets and Reporting:
- Winnings and taxes are reported under "Other Income" on Form 1040 during annual tax preparation.
- The 24% withholding is an estimated tax, and the actual amount owed depends on the total income for the year.
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Professional Gamblers:
- Gambling proceeds are considered regular earned income for professional gamblers.
- They must record income and expenses on Schedule C as self-employed individuals.
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Tax Requirements for Nonresidents:
- Nonresidents report gambling winnings on Form 1040NR, taxed at a flat rate of 30%.
- Canadian citizens may deduct gambling losses due to a tax treaty between the U.S. and Canada.
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State-Specific Taxation:
- Some states require reporting gambling winnings in the state where they were won.
- Most states tax all income earned within their borders, offering credit or deduction for taxes paid to non-resident states.
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Casino Reporting to IRS:
- Casinos report earnings to the IRS if winnings exceed certain thresholds (e.g., $600 or 300 times the initial wager).
In conclusion, navigating the tax implications of gambling winnings requires a comprehensive understanding of IRS regulations, state-specific requirements, and the individual's financial situation. It is imperative for individuals engaging in gambling activities to be well-informed and maintain meticulous records to ensure compliance with tax laws.
