What Taxes Are Due on Gambling Winnings?

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What Taxes Are Due on Gambling Winnings?

Every year, around 40% of American adults visit at least one of the casinos in Las Vegas, Nevada, Atlantic City, New Jersey, or one of the dozens of locations in between, not to mention via the internet. A few people are very wealthy.

Unfortunately, you do not get to retain every dime you earn when gaming. Gambling gains are completely taxed, and the Internal Revenue Service (IRS) has mechanisms in place to ensure that it receives its fair share. It’s not only casino gambling either. Lottery, horse race, off-track betting, sweepstakes, and game show winnings are also taxed.

If it helps, gambling losses are tax deductible if you itemize your deductions. However, they are only deductible up to the amount offset by your gains, and you must be able to prove it with records of your earnings and losses.

Before you hit the Las Vegas strip, be sure you understand the tax law as it applies to gambling to prevent a run-in with the IRS.

Key Takeaways

  • If you win more over a specific sum, the payer will remove 24% of your gains immediately.
  • You’ll record your earnings and tax payments when you complete your yearly tax return. Depending on your tax rate, you may have to pay more or get part of your money back.
  • You may deduct gambling losses up to the amount of wins reported. Keep detailed records.
  • Gambling always has a negative anticipated return since the house always has an edge.

How Gambling Winnings Are Taxed

If you win a significant sum of money in any lawfully regulated game of chance, the payer will deduct 24% of the total for taxes and provide you with a copy of IRS Form W-G2 to document the transaction.

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In gaming, what is “a large sum of money”? It is determined by the game. It’s $1,200 or more for slot machine or bingo wins, but $1,500 for keno. Sweepstakes, wagering pools, and lotteries are all limited at $5,000.

In either scenario, 24% of your winnings will be withheld from your compensation and remitted straight to the IRS on Form W-G2. This 24% tax is an estimate. You may get part of it back, or you may owe more.

Taxes on wins from skill games such as blackjack are not withheld immediately, but you must still declare the income and pay taxes on it.

Exceptions to the Rules

Casinos are not obliged to withhold taxes or provide W2-G forms to players who win substantial amounts in table games such as blackjack, craps, and roulette, which are all classified as games of skill rather than games of chance.

It is unclear why the IRS varied the standards in this manner. Slot machines are considered to be games of chance, whilst table games are considered to be games of skill.

In any event, when you cash out your chips from a table game, the casino has no way of knowing how much money you began with.

This does not relieve you of the duty to report your winnings to the IRS. You just do it when you submit your taxes for the year, rather than when you claim your wins at the casino.

Also, keep detailed records of your gambling activity, including losses and wins. You may be able to avoid paying taxes if you spend $2,000 to win $2,000 in a lottery.

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The Supreme Court granted states in the United States authority to allow sports betting in 2018. In 17 states, including California, Massachusetts, and Texas, it is still completely prohibited. There is pending legislation in four additional states.

Reporting Gambling Winnings

When you file your taxes for the year in which you received a gambling payment, you’ll record the income and taxes previously paid on Form 1040 under “Other Income.”

Remember that the 24% tax you had paid was an estimate. The actual amount you owe (or will be repaid) is determined on your entire year income.

There are now seven different tax brackets. To owe additional taxes on your wins in the 2021 tax year, you must have an individual income of more than $164,925 (including your winnings). If your total income was less than $86,376, you may be eligible for a refund.

Do Casinos Report Gambling Earnings to the IRS?

Yes, however specific criteria must be met in order for a casino to disclose profits. The amount at which gambling gains must be reported to the IRS varies depending on the game.

Winnings at a horse racing facility that surpass $600 or 300 times your original bet must be recorded. All wins above $1,200 on slot machines and bingo must be reported. The level in a poker tournament is $5,000.

Taxes for Professional Gamblers

If gambling is a person’s genuine occupation, gambling revenues are normally treated as regular earned income and taxed at the taxpayer’s regular effective income tax rate.

Schedule C is required for self-employed individuals to document their income and expenditures.

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Schedule C allows a professional gambler to deduct gambling losses as business expenditures (not Schedule A).

Gambling Income Tax Requirements for Nonresidents

Nonresidents of the United States must report gambling earnings on Form 1040NR. In most cases, such income is taxed at a flat rate of 30%.

Nonresident aliens cannot normally deduct gambling losses. The United States and Canada have a tax treaty in place. It enables Canadians to deduct their gambling losses up to the amount of their gains.

Are Gambling Losses Deductible?

For tax reasons, you may deduct any money you lose when gambling from your earnings.

However, gambling losses in excess of winnings cannot be claimed as a tax deduction. There is no silver lining in the form of lower tax obligation when you lose your shirt in Vegas.

Do the States Tax Gambling Winnings?

Some states compel gamblers to claim their wins in the state in which they were won.

Most states tax all money produced inside their borders, regardless of residence.

Furthermore, your resident state will compel you to disclose the wins while providing a credit or deduction for taxes previously paid to a non-resident state.

If you or someone you know has a gambling issue, contact the National Problem Gambling Helpline at 1-800-522-4700 or speak with a helpline professional at ncpgambling.org/chat.

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