Gambling winnings are fully taxable, meaning that even if you beat the odds and win big, you won't get to keep every penny. The Internal Revenue Service (IRS) has ways of ensuring that it gets its share. And it's not just casino gambling. Winnings from lotteries, horse races, off-track betting, sweepstakes, and game shows are taxable as well.
Roughly 75% of people visiting 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. Of all those who gamble, regardless of in which city, or whether they bet in person or online, very few take home a lot of money. Many end up losing money.
If it's any consolation, gambling losses are deductible if you itemize your deductions. But they're deductible only up to the amount that is offset by your winnings, and you must be able to prove it through records of your winnings and losses.
Before heading for the Las Vegas strip, make sure you understand the tax law as it relates to gambling to avoid a mess with the IRS down the road.
- If you win above a certain amount, the payer will deduct 24% from your winnings on the spot.
- When you file your annual tax return, you'll report your winnings and your tax payments.
- Depending on your tax bracket, you may then have to pay more or you may get a refund.
- You can deduct gambling losses up to the amount of winnings that you report, so keep good records.
- Gambling always involves a negative expected return — the house always has the advantage.
How Gambling Winnings Are Taxed
If you win a substantial amount of money in any legally operated game of chance, 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.
What is "a substantial amount of money" in gambling? It depends on the game. It's $1,200 or more in winnings at slot machines or bingo games, but $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 owe more.
Taxes on winnings at games of skill like blackjack are not immediately withheld but you still are required to report the income and pay taxes on it.
Exceptions to the Rules
Casinos are not 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, all of which are categorized as games of skill rather than games of chance.
It is not clear why the IRS has differentiated the requirements in this way. But slot machines are considered games of chance, while table games are seen as requiring a level of skill.
In any case, when you cash in your chips from a table game, the casino cannot determine with certainty how much money you started with.
This does not 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 taxes for the year rather than at the casino when you claim them.
Make sure you keep good records of your gambling activities — losses as well as gains. If you spent $2,000 to win $2,000, you might be able to avoid paying taxes.
In 2018 the Supreme Court gave U.S. states permission to legalize sports betting if they wished to do so. It is currently legal in 35 states and the District of Columbia, and legal, but not yet operational in three other states. It is still illegal in five states (California, Utah, Idaho, Alabama, and Alaska). In seven other states, there is dead legislation.
Reporting Gambling Winnings
When you prepare your taxes for the year in which you won a gambling payout, you'll report the income and the taxes already paid on it under "Other Income" on Form 1040.
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 currently seven tax brackets. For the 2023 tax year, you would have to have an individual income above $95,375 (including your winnings) to move above the 24% tax bracket and owe more taxes on your winnings. For married couples, filing jointly, the maximum income would be $190,750.
Taxes for Professional Gamblers
If gambling is a person's actual profession, gambling proceeds are usually considered regular earned income and are taxed at a taxpayer's normal?effective income tax rate.
As a self-employed individual, the income and expenses must be recorded on Schedule C.
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. However, 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. However, gambling losses in excess of what you win may not be claimed as a tax write-off. When you lose your shirt in Vegas, there is no silver lining in the form of reduced tax liability.
Do the States Tax Gambling Winnings?
Some states require gambling winners to claim the gambling winnings in the state where they were won. Most states tax?all?income earned in their state, regardless of your residency. In addition, your resident state will 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. At a horse racing track, winnings that exceed either $600 or 300 times your initial wager must be reported. For slot machines and bingo, all winnings in excess of $1,200 must be reported. In a poker tournament, the level is $5,000.
The Bottom Line
Gambling winnings are fully taxable, per IRS regulations. However, 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 you wins and losses to support your tax deduction claims.