Paying Taxes on Gambling Winnings

While all states require individuals to pay taxes on gambling winnings, these rules will vary depending on where you are located. Whether you’re a casual or professional gambler, knowing these rules is essential so you don’t risk any serious penalties. Throughout this guide, you’ll learn all you need to know about this topic.

It’s not just the taxes on casino winnings you’ll need to consider. There are several online gambling taxes that are applied to everything from sports betting to DFS. For this reason, we’ve started this guide by looking at the intricacies of gambling taxation on a federal and state level.

We’ve then broken down the basic tax rates for gambling for each state before covering what you need to do to pay your gambling taxes. We’ve then discussed whether you can claim tax deductions from gambling losses before explaining whether there are any penalties for not reporting your winnings to the IRS.

• About Taxes on Casino Winnings
• Casino Taxes by State
• How to Pay Your Gambling Taxes
• Tax Deductions
• Penalties for Not Reporting Winnings

About Taxes on Casino Winnings

Unlike many other countries around the world, gamblers in the USA must pay taxes on casino winnings. However, there are some exceptions to this rule. Each gambling activity has a different minimum threshold for winnings to be reported to the IRS. Once this is exceeded a 24% tax rate is applied.

In most cases, a casino will automatically deduct this amount from your winnings when you cash out and you won’t need to worry about it. In addition to this, casinos pay varying tax rates depending on the location of the state, If you’re a professional gambler, it’s also possible to claim a gambling losses tax deduction.

Federal Tax Minimums

The minimum threshold differs from activity to activity. For example, if you win less than $1,200 on slots or bingo, you won’t need to pay taxes. The minimum threshold is $1,500 and under for keno, and $5,000 and under for sweepstakes, poker, and lotteries. For sports betting, the taxation threshold is $600 or more.

Casino Taxes by State

As we’ve mentioned, each state will have varying tax rates applied to casino and sports betting revenues. For example, taxes on sports betting in NJ differ from those in Pennsylvania or Michigan. We’ve covered the casino taxes by state in the following table.

Please note that we have only included states where both sports betting and casino gambling is legal:

It’s worth noting that the above tax rates will not concern individuals at all. Instead, these rates are applied to casino revenues, with operators having to pay these to the local government. However, higher rates can have an impact on the payout rates of games and the affordability of casino visits.

In some states, you will be required to claim the winnings in their state. You may be charged taxes by these states for these winnings, even if you’re not a resident. You will need to report these winnings when you do your local tax return, though you will receive a deduction on this income if it’s already paid to the non-resident state.

How to Pay Your Gambling Taxes

When you’ve won over the threshold, the operator is required to issue you a Form W-2G. This is evidence that you have won and that the tax has automatically been deducted. For winnings that haven’t been deducted, you must report the gambling income in the “Other Income” section of your tax return.

The flat rate for taxes on gambling winnings is set at 24% initially. However, you may get reimbursed some or have to pay more depending on which tax bracket you are in. If you’re a professional gambler, you will need to report your gambling winnings as regular income and you’ll be taxed according to your tax bracket.

Non-residents of the USA must also report gambling winnings using Form 1040NR. This will be taxed at a flat rate of 30%. However, only Canadian citizens may deduct their US gambling losses.

Gambling Losses Tax Deduction

The IRS permits individuals from claiming losses every year. However, your gambling losses can not exceed what you have won. For example, if you have won $10,000 but have lost $12,000, you can only claim $10,000 back as losses. The remaining $2,000 can not be written off.

This means that if you’ve only lost from gambling in a year, you will not be able to reduce your total tax bill. You will need to have won money to be able to claim anything back. Your gambling losses must be included on the Schedule A form and be itemized, meaning your winnings will be declared before the itemized deduction is considered.

Penalties for Not Reporting Winnings

It’s never worth actively failing to report your gambling winnings on your annual tax return. This is considered a violation of the law amounting to tax evasion. The IRS may discover this by comparing the W-2G forms and your income. They then will contact you asking for an explanation and may incur a small fine.

If this is a repeated offense or a large sum of money, you may receive a 20% fine of your total under-reported amount or $5,000, whichever is larger. In extreme cases, the IRS can pursue criminal charges and offenders may receive jail time of up to five years. Avoid the penalties for not reporting gambling winnings and lodge them on your return.

Conclusion

Now that we’ve concludes this guide on taxes on gambling winnings, you should be comfortable to lodge your winnings come tax time. Fortunately, top online gambling sites will automatically deduct taxes from your winnings if they exceed the minimum threshold. However, it’s essential to keep the W-2G form as you may be able to claim some of this back.

Essentially, your gambling winnings will be considered income and taxed accordingly. It is worth noting that some states may apply extra taxes on your gambling winnings. You will be prompted to report these when you lodge your state taxes. And remember, avoid penalties by always reporting your winnings.